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rCQJUHTTEE PRINT]
81st C o n g r e s s !
2d Session
I

SENATE

{ n o .P
—

JOINT ECONOMIC REPORT

REPORT
OF THE

JOINT COMMITTEE ON THE ECONOMIC REPORT
ON THE

JANUARY 1950 ECONOMIC REPORT
OF THE PRESIDENT

Printed for the use of the Joint Committee on the Economic Report

u n it e d

states

GOVERNMENT PRINTING OFFICE

66696




WASHINGTON : 1950

JOINT COMMITTEE ON THE ECONOMIC REPORT
(Created pursuant to sec. 5 (a) of Public Law 304, 79th Cong.)
SENATE
JOSEPH G. O'MAHONEY, Wyoming,
FRANCIS J . MYERS, Pennsylvania
JOHN SPARKMXN, Alabama
PAUL H. DOUGLAS, Illinois
ROBERT A. TAFT, Ohio
RALPH E . FLANDERS, Vermont
ARTHUR V. WATKINS, Utah

Chairman

T h e o d o r e J. K
G rover

W.




reps,

Staff Director

E n s l e y , Associate Staff Director

Jo h n

II

HOUSE OF REPRESENTATIVES
EDWARD J. HART, New Jersey, Vice Chairman.
WRIGHT PATMAN, Texas
WALTER B. HUBER, Ohio
FRANK BUCHANAN, Pennsylvania
JESSE P. WOLCOTT, Michigan
ROBERT F. RICH, Pennsylvania
CHRISTIAN A. HERTER, Massachusetts

W.

L ehm an,

Clerk

CONTENTS
I. C O M M ITTEE FIND ING S
The fundamental problem .------------------- -----------------------------------------------The basic solution: Private capital investment__________________________
A positive program to strengthen the system of private property. .............
Unity in the Congress------------------------ ------------------ -------- -------- ---------------Unity in the programs of business, labor, and agriculture________________
Recommendations_____________________________________________________
Comments on the President’s legislative recommendations_______ _______
Comments on subcommittee reports and recommendations______________
Supplementary statement of Senator Douglas........... ..................... - - ...........

Pag*
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II. VIEW S OF THE M IN O R IT Y ...........................

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III. SUPPLEM EN TARY STAFF M ATERIALS
The consumer segment_________________________________________________
Consumer income__________________________________________________
The business segment_________________ _________________________________
The housing and construction boom________________________________
The problem of international investment__________________ ________
Business income_____ __________ ! __________________________________
_
Corporations never more liquid____________________________________
Profits not equally good for small business_________________ ________
Widening fissures in the price structure_____________________________
Steel__________________________________________________________ ____
Farm prices_________ ______________________________________________
Dual pricing in business_________________________ __________________
The framework of business price policies___________________________
Competition and bigness _________ _________________ ______ ______ ___
The government segment_______________________________________________
Government expenditures__________________________________________
How flexible is the 1950-51 budget?________________________________
Progress in implementing Hoover Commission recommendations_____
National defense costs___________________________________ ________ _
Aids to business_____________________________ _____ ________________
Government receipts_______________________________________________
Excise taxes______________________________________________________ _
Estate taxes_______________________________________________________
The Federal debt__________________________________________________
Appendix A:
I. Productivity estimates and deflation of gross national product_
II. Capital equipment boom and backlog________________________
III. Employment opportunities attributable to United States
exports, 1949_________________________________________ ____
IV. Prices paid and received by farmers, 1910-49_________________
V. Comparison of business and governmental units with assets
exceeding $1,000,000,000 in 1949___________________________
VI. Federal cash payments to the public by type of recipient and
transaction________________________________________________
VII. Major Federal loan programs________________________ _______
VIII. Recommendations of subcommittees of the Joint Committee on
the Economic Report:
1. Subcommittee on Monetary, Credit, and Fiscal Policies.
2. Subcommittee on Investment_________________________
3. Subcommittee on Unemployment..___________________
4. Subcommittee on Low-Income Families_______________
IX . Legislative recommendations by business, farm, and labor
organizations___________________________________ 1_________




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CONTENTS

IV

Page-

Appendix B. Summary of the work of the Joint Committee on the Eco­
nomic Report, March 1, 1949-February 28, 1950:
The committee's report on the President’s Economic Report________ ___ 108
Subcommittee studies______________________________________________ ___ 108
Other hearings and reports_________________________________________ ___110
Committee activities in the field of regional development_______________111
Committee activities in the field of economic statistics______________ ___ 111
Committee relationships with executive agencies and other con­
gressional committees__________________________________________ _ _
111
Amendments to the Employment Act of 1946__________________________ 112
Distribution of Joint Economic Committee materials___________________ 113
Statement on statistical gaps_______________________________________ ___ 113
Appendix C. Publications of the Joint Committee on the Economic Report,
January 1949-April 1950_____________________________________________ ___ 121
Charts

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

National output and labor input____________________________________
Gross national product______________________________________________
Personal income, consumption, and saving__________________________
Corporate bond and common-stock yields, and earnings/price ratios __
Rates of profit for manufacturing corporations by asset size groups
Faces
Significant business indicators_________________________ _____________
Wholesale prices____________________________________________________
Prices received for farm products and prices paid by farmers for
commodities used in production, 1910-49_________________________
Analysis of budget expenditures, fiscal year 1951: January 1950
estimate__________________________________________________________
Internal revenue derived from individual income and estate and gift
taxes, 1939 and 1949_____________________________________________

36
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60
63
71
80

Tables

1. Selected series relating to consumption____________________________
2. Net personal saving and net income of each fifth of the Nation’s
spending units__________________________________________________
3. Distribution of spending units by 1948 money income level who held
no United States savings bonds in early 1949___________________
4. Money income received by each fifth of families and single persons,
1935-36, 1941, and 1948________________________________________
5. Gross private domestic investment and new public construction as
percentages of gross national product, selected periods---------------6. Sources and uses of corporate funds, 1946-49______________________
7. New construction activity, 1948-49 and first 4 months of 1950____
8. Current assets and liabilities of United States corporations, 1942-499. Distribution of wholesale price changes for 733 commodity price
series, August 1948 to August 1949_____________________________
10. Prices and private investment, 1919-50----------------------------------------11-a. Federal payments to the public by major functions________________
11-b. Federal receipts from the p u b l i c . ---------------------------------------------12. Average Federal employment in executive branch, fiscal years 1939,
1948, and first half of 1950, with comparisons— broken to show
civilian employment in Post Office Department, National Military
Establishment, Veterans’ Administration, and other agencies-----13. Budget authorizations and expenditures for selected national
security activities______________________________________________
14. Cash outgo to business and to farmers____________________________
15. Summary of obligations by objects (general and special accounts)
for the fiscal years 1949, 1950, and 1951________________________
16. Federal receipts from the public, 1939, 1945, and 1949____________
17. Percentages of individual income-tax receipts paid by income
groups--------------------------------------------------------------------------------------18. Comparison of effective rate of individual income tax under recent
revenue acts___________________________________________________
19. Public and private debt___________________________________________




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SENATE

8 1 s t C ongress )

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R eport

N o .-----

JOINT ECONOMIC COMMITTEE REPORT ON THE ECO­
NOMIC REPORT OF THE PRESIDENT, JANUARY 1950

June

M r . O ’M

ahoney,

from the Joint Committee on the Economic Report
submitted the following

REPORT
[Pursuant to Public Law 304, 79th Cong.]

Transmitted herewith is the 1950 annual report of the Joint Com­
mittee on the Economic Report. This report, prescribed by the
Employment Act of 1946, is intended to serve “ as a guide to the several
committees of the Congress dealing with legislation relating to the
Economic Report.” It indicates the committee’s findings and recom­
mendations with respect to materials covered in the President’s report.
Also attached are views of the minority and supplemental materials
prepared by the committee staff. The committee held hearings on
the President’s report on January 17, 18, 19, and 20.
The American economy is today the greatest productive unit in
the world. Its strength and balance are the main source of hope for
hundreds of millions of people everywhere who cherish freedom.
What happens in the American economy vitally affects the longrange struggle between communism and democracy throughout the
world. American economic policy is the cornerstone of successful
strategy for world peace. Every decision made by government in
shaping that policy, and every major action taken by industry which
influences the efficiency and expansion of the economy must be viewed
against the background of international realities.
Wisdom and integrity in the policies of government, and responsi­
bility and courage in the conduct of industry are the fundamental
requirements. To sustain an increasing level of production, employ­
ment, and income to meet the needs of a growing population, and to
enable this country to provide the broad economic base for a leading
position in the world economy—these are the primary responsibilities
of industry under free competitive enterprise. To guide so that maxi­
mum benefits may be obtained for the Nation as a whole is the task
of government. To achieve these purposes, there must exist a clear
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2

JOINT ECONOMIC REPORT

and unshakeable agreement upon principles. There must be a clear
realization that if the American economy falters in its stride, or
weakens in its confidence of aims, the consequences may well endanger
the life of democratic society throughout the world.
American economic policy is thus a major instrument of world
peace. No sound decision with respect to the steps that Government
should take to shape it can be made except against the background
of the struggle now being waged on the international stage between
communism and democracy.
The Communist has no difficulty in fixing policy. He has only to
dictate it. Then he enforces it by terror among subject peoples and
he promotes it by sowing confusion among other peoples.
The democrat, on the other hand, forms economic policy as he
forms political policy, by a study of the facts, by analysis of thenmeaning, by debate upon the course of action that should be followed
and, finally, by agreement of the majority. The independent choices
of millions of people as consumers and as producers are the indispen­
sable ingredients of democratic procedure.
The course of the democrat is by far the more difficult, but never
was that course more necessary than it is now in American democracy,
for the penalty of failure to continue vigorous use of democratic proces­
ses will be success for the Communist cause. Needless to say, the
latter would mean the loss of individual freedom in the economic as
well as in the political sphere in whatever geographic areas the Com­
munists became dominant. The world peace Americans seek is a
peace in which the individual shall be free, in which no dictator either
political or economic, shall be able to tell him what he must do, or
what he can do, but in which the individual, by agreement with his
fellows, will continue to divise and enforce rules for strengthening and
expanding liberty.
The struggle for peace is not inexpensive. It is less costly, to be
sure, than an active modern war of destruction, but it is more costly
in terms of economic production and distribution than any war
antedating the twentieth century. Most of the cost of this struggle
for peace falls upon the United States. The Charter of the United
Nations, the Act of Chapultepee, the North Atlantic Pact, American
policy in Turkey and Greece, the Marshall plan, and finally, the
arming of western Europe to inspire confidence among the democratic
peoples of western Europe that they would not be abandoned to
aggressive warfare by the Communists, all of these are steps taken by
the will of the American people to establish the international frame­
work for peace and freedom. They all place an annual burden upon
the resources of the United States heavier than any military conflict
in which the Nation was ever engaged prior to World War II. With­
out the initiative and the cooperation of the people of the United
States, these barriers of freedom against communism could not pos­
sibly be erected. What we do in Europe or elsewhere in the world in
the struggle for peace is only a holding action. The decisive battle­
ground is here in the United States for it is here and only here that the
basic economic strength can be maintained upon which the free
peoples of the world may rely for their peace and freedom.
This is what gives our struggle for maximum human values and
economic opportunity its primary importance. It is to the mainte­
nance of this economic strength that the policy of the Employment




JOINT ECONOMIC REPORT

3

Act of 1946 is directed. The analysis of the Economic Report of the
President which this committee is required by the Employment Act
to make must be directed to the same end. The principles laid down
in his report of January 6, 1950, take on special significance in the
light of the international situation and the part we must play in world
leadership. “ Government,” he tells us, “must carry out the aspira­
tions of the whole people.” This would be the mere repetition of an
elementary principle were it not for the fact that it is precisely this
responsibility of government to act for the people as a whole and in
response to their will which is being challenged in the modern world.
If we are to continue our economic growth—

the President goes on—
the major economic groups must all pull together— businessmen, wage earners,
and farmers must work toward the same ends * * * our success will depend
upon the widespread conviction that all groups have a stake in the expansion of
the economy— they all will share in the benefits of progress.

Few will disagree with this statement or with the “ unifying prin­
ciples for action” set forth in the Economic Report. Our economy
must continue to grow. The benefits of growth must be shared by
all. The growth cannot be obtained automatically, but only by con­
scious purpose and hard work. The fiscal and other economic policies
of the Government must be designed to promote growth. Govern­
ment must deal with trouble spots in the economy.
The necessity for Government action to maintain and strengthen a
sound free economy is made clear by consideration of the basic fact
that the people of the United States are carrying a gigantic war debt,
the interest upon which annually is more than $5,000,000,000. That
sum is more than half of the total outlay of the Federal Government
for all purposes in the year 1939. To fight the war Congress laid a
heavy burden of taxation upon the people. It mortgaged the future
production of the United States for years to come by issuing bonds
and it adopted a deliberate policy of restraining personal consumption
expenditures, private investment, and the production of civilian goods.
During the period from 1942 to the end of the shooting war in 1945,
the Government purchased more than 45 percent of the Nation’s total
production of goods and services for war purposes. Meanwhile, how­
ever, men and women in the armed forces and a fully employed civilian
population at home were accumulating savings at an extraordinary
rate, thus creating a reservoir of purchasing power which was released
immediately after production for war was no longer necessary on a
vast scale.
By the Contract Settlement Act, the War Mobilization and Recon­
version Act, the Surplus Property Disposal Act, and other statutes
Government prepared for reconversion. Rapid though this was, the
production of civilian goods was not rapid enough to satisfy the
released purchasing power, so that inflationary forces created during
the war were not checked but continued in a different form after re­
conversion had begun. Production was maintained at a high level.
Prices were high, profits were breaking all records. The disappearance
of the gray market late in 1948, a sharp drop in industrial production
beginning in the third quarter of that year, and indications that the
country was moving from a sellers’ market to a buyers’ market de­
veloped uncertainties which late in 1949 had largely disappeared. As
the year 1950 began, economic forecasts were unanimously optimistic.




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JOINT ECONOMIC REPORT

So far as 1950 is concerned they remain optimistic. Government
policies such as insurance of bank deposits, unemployment insurance
and old-age assistance, aid to farmers and minimum-wage legislation
will, they are confident, constitute effective brakes upon any sharp
decline. Other factors, low inventories, backlogs of demand for steel
accumulated during the strike, continued high levels of automobile
sales, an unusually high rate of construction contract awards and
heavy Government outlays in State and local as well as Federal
jurisdictions, together with the insurance dividends to veterans, are
counted upon by these observers to maintain a high level of purchasing
power throughout the year.
In the first 5 months of 1950, prices have generally stabilized or
risen; disposable personal income increased in the first quarter to
201.3 billion dollars, an all-time high (due to national service life
insurance dividends). Consumers’ expenditures have risen; employ­
ment has improved; and private domestic investment climbed sharply.
Also, the construction industry has reached an all time peak. The
May 1950 Survey of Business Expectations made by Dun and Bradstreet, Inc., showed that more businessmen expect increases in sales
and net profits than at any time since July 1949. These signs point
to a renewed upsurge in the economy.
A favorable short-term picture should not be allowed to obscure
the underlying problems and weaknesses that must be corrected if
maximum employment, production, and purchasing power are to be
achieved and maintained in a growing economy, year after year*
That is why most observers reserve judgment so far as 1951 is con­
cerned, inasmuch as a measure of tapering off in the automobile,
steel, and construction industries seems highly probable.
The facts before us, however, the high war expenditure and war
output, the accumulated purchasing power after reconversion, and the
continuing high level of demand for the near future described by
economists—serve but to emphasize the central economic problem.
It is this: We have an extraordinary national debt created by Govern­
ment expenditures for war, the interest upon which and the liquidation
of which must be met by a continued high level of production and
economic activity. If there should be no substitute market for the
products of field and factory in the years following 1950 to supplement
the market created by the extraordinary Federal outlay for war and
the extraordinary private outlay to satisfy the accumulated demand
for civilian goods, the Government would be face to face with a serious
problem of finding the revenues with which to pay the interest upon
the national debt and carry on its normal functions.
THE FUNDAMENTAL PROBLEM

Consumer expenditures, together with private domestic and foreign
investment, in the face of declining Government purchases of goods
and services, must be sufficient in volume to provide the market for
business and employment for an increasing population. Should there
be no compensating increases in the private sector of the economy,
curtailment of Government expenditures by itself, whether in the
National Defense Establishment, under the Marshall plan, or in
natural resources development would inevitably result in a decline of




JOINT ECONOMIC REPORT

5

national product and employment, and a drop in Federal revenue
regardless of tax rates.
THE BASIC SOLUTION: PRIVATE CAPITAL INVESTMENT

A continuously expanding economy is, therefore, the sine qua non for
national strength and freedom. What the people, through their
own efforts and their Congress, have to decide is whether this expand­
ing economy will be promoted primarily by private investment, by
Government investment, by increased consumer purchasing power, or
by a constructive mixture of all. No one factor alone can do the job.
There are some necessary and desirable projects which can be
undertaken successfully only by Government. Into this category fall
public roads, improvement of rivers and harbors, reclamation, schools,
water supply, and the like.
The guiding principle throughout is simple. The field of private
capital investment should be encouraged, fostered, and promoted to
the maximum extent for those projects which it can adequately serve.
The Joint Economic Committee Subcommittee on Investment made
several highly useful recommendations for the establishment by
Government of mechanisms through which private capital might
more easily be chaneled and made more productive in aid of independ­
ent, competitive, private, local enterprise.
The first decision clearly is to determine what must be done to aid
in expanding, encouraging, and fostering private enterprise. Govern­
ment controls should never be adopted for their own sake. They are
justifiable only to the extent that they are essential to the success of
necessary Government policy, as for example, national defense.
Having fixed what Government has to do, we must decide whether
we are willing to pay for it, and how. If the cost seems excessive, we
must be prepared to abandon those objects of Government expenditure
for which we are unwilling to impose taxes upon ourselves sufficient to
foot the bill.
There are many programs that obviously cannot be abandoned.
National defense comes first. International programs to establish
peace certainly cannot be abandoned, unless we are willing to risk the
vastly more expensive alternative, active warfare. Heavy as the
burdens under the Economic Cooperation Act admittedly are, such a
measure places a vastly smaller burden on public and private re­
sources than active warfare.
However, to finance essential national defense and international
peace programs, we cannot afford to abandon those governmental ex­
penditures which promote and sustain a sound and expanding econ­
omy. It would be short-sighted to cancel the Governments policy,
for example, of sustaining a developing aviation industry, just because
thereby some measure of curtailment might be effected in Government
outlays. It might help to balance the budget so far as Government
expenditures are concerned, but on the revenue side it would make
such a balance more difficult to attain because it would cut down the
amounts the Government receives from all the business, industrial,
and commercial altivities that revolve about the aviation industry.
Recommendations which expand and sustain the domestic economy
obviously likewise broaden the tax base. By promoting industrial
and commercial activity, they encourage the increased formation of




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JOINT ECONOMIC REPORT

real purchasing power without which neither business nor Government
can succeed.
For maximum beneficial effect private investment must be pro­
tected and expanded. That is the heart of several of the President’s
proposals, notably those seeking revision of the tax structure with a
view to stimulating business activity, those designed to stimulate
private investment in housing, those providing increased RFC and
other aid to small business, those protecting private enterprise and
property on the farm, those in aid of free exchange of goods and
services and increased private investment abroad, and the like.
The basic rule to be rigorously followed is that private individuals
must do the job wherever they most effectively can. Where there
is no possibility of their doing it, they have a right to use their Govern­
ment. Thus under the emergency conditions of the war, they de­
manded and secured price and other controls without which war
inflation could not have been moderated. But all such controls
must be removed at the earliest possible moment consistent with
uneral public advantage. The over-riding rule continues as before:
s much as possible, the job must be done by private investment, by
private competitive enterprise, by private individuals.
The conclusion is inescapable that wise public policy demands a
continued high level of production in which all groups shall have a
responsibility and a share. Nothing could be more futile now or
more destructive of the ultimate aims of the American ideology than
a conflict among American economic groups on the domestic scene.
Management cannot save itself alone. Labor cannot save itself alone.
Agriculture cannot save itself alone. They are all in the same boat
together. Cooperative and constructive action constitute tbeir only
salvation. The luxury of special interest and class conflict must be
postponed at least until the cold war being waged against us has been
ended and the world has found genuine and lasting peace.
Our task is the maintenance of a democratic economy within the
framework of the system of private property. We must review the
facts in the light of this purpose. Foremost among these is the fact
that in a year of high prosperity, Federal expenditures are running
ahead of Federal revenues by possibly $4,000,000,000. War-connected
expenditures alone are now running at a rate almost three times
greater than the total cost of Government before the war. While the
outlays for the ordinary activities of Government—percentagewise—
are approximately only 21 percent of the total, they also, nevertheless,
are greater now than the total cost of the Federal Government, in­
cluding war-connected expenditures, prior to the war.
A critical examination of the present level of Government ex­
penditures is imperative. In years of such booming business as
currently is causing prices to boil up in inflationary manner throughout
the economy, this Government should not be incurring deficits. It
should put its financial house in order. Inability to vote against
appropriations or vote for increased taxes needed to foot the bills
this Government now incurs, is a sign of weakness that enemies of
free enterprise are gleefully exploiting throughout the world. It
represents the greatest single danger to freedom and national security.
Today the Government should make doubly sure to get the most
for every dollar spent. With a deficit already mentioned of about
$4,000,000,000 (it might be noted that total interest paid on the

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Government debt is a billion dollars more than in 1945 when the
debt was at its peak), the need may arise for even larger outlays so
that the free nations of the world may achieve maximum economic
and military strength. The quest for economy must be indefatigable
and unrelenting. Every project must be made to defend itself on
its merits. Every waste must be eliminated.
This is particularly true with respect to military expenditures. It
is so easy to place undue confidence in a Chinese wall or a Maginot
line or in atomic bombs.
Yet the records of history show on every page that the strength of
great nations depended and depends not on arms and weapons, imortant as they may be, but on the faith, the courage, and love of
berty and the skills of their citizens. It is not what nations profess
but what they do that counts. Leadership among great democ­
racies goes to those that by the propaganda of the deed prove what
freemen can do under political and economic organizations that
derive their just powers from the consent of the governed. To work
for freedom, for prosperity, and for the welfare of all is to work not
only for a just and lasting peace but to hasten the spread and insure the
adoption of free democratic institutions everywhere.

E

In the last analysis [states an eminent group of progressive American business­
men] the economic strength and the freedom and security of this country rest on
the moral and spiritual vigor of its people. The prestige and friendship we enjoy
in many parts of the world arise not merely because of our power but because we
have offered the world a unique brand of idealism— the determination to base our
political organization on the capacity of individuals for self-government.
Now new requirements of national security threaten our freedom. A major
security program requires big government and means greater interference in the
lives of us all.
We Americans are painfully learning that our security program cannot be kept
to a minor budget nor to an incidental effect on our peacetime lives. * * *
Our security program is only partly a matter of rearmament. The European
recovery program, atomic energy, our foreign broadcasts, and the conduct of our
diplomacy and incoming intelligence are also in large part security measures.1

But these will not be enough. Left-wing and Communist propa­
ganda is flooding Europe and Asia with the doctrine that because of
internal contradictions our free-enterprise system is bound to go down
into another economic crash which will create the vacuum into which
communism can march unopposed, brought into power by forces from
within rather than imposed from without. This constitutes the major
challenge to modern political and business leadership, the maintenance
of a steadily expanding economy continuously affording maximum
opportunity and high-level employment for its capital and labor.
To meet so vital a challenge will require heavy outlays. These in
turn are bound to involve a heavy tax burden upon the people. In
its present form our tax structure still contains the hastily prepared
schedules of the war economy. These war-imposed levies, devised
in some instances to raise the largest possible revenue, and in other
instances to discourage certain civilian activities, make the tax
structure as a whole unsuited to provide the incentives and productiv­
ity necessary to stimulate economic activity and uphold the effort to
win the peace.
The Federal debt, as has already been pointed out, has reached un­
precedented proportions. It has been well managed to date, but no
serious study can be given to an economic program designed to pre­
1Committee for Economic Development, National




Security and Individual Freedoms,

1950.

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serve the capitalistic system which does not take account of the neces­
sity of giving top priority to the reduction of this debt in prosperous
years such as 1949—that is, in years with high-level employment, high
profits, good markets, and generally encouraging outlook. The
debt constitutes a most troublesome dilemma. We incurred it to
win the war; we retain it while striving to win the peace. Its existence
challenges us to scrutinize every Government expenditure, first on the
score of its necessity as in the field of international affairs—and
secondly upon the score of its productivity as well as its unavoidability as in the field of domestic affairs.
As respects prices in the domestic economy there began to appear
in 1949, and there is continuing into 1950, a striking divergence be­
tween the trend of administered prices on the one hand, and flexible
prices upon the other. A sample of 228 commodities in the former
category showed an increase in 1949 of 2.2 percent. Comparable
with this increase was the price decrease of 226 commodities in the
flexible price field; these went down 9.5 percent. Among these were
certain raw materials, scrap iron, industrial alcohol and fuel oil to­
gether with farm products and foods. The prices of farm products
fell from a high in 1948 of 88.3 percent above 1926 levels to 55.3 per­
cent in January of 1950. Steel prices on the other .hand advanced so
that they were 71.1 percent above 1926 levels in January of 1950.
Since January, some recovery has taken place in farm prices.
Such disparity indicates that many commodities selling in uncon­
trolled markets are going down while some which sell in a controlled
market are up. This is precisely the condition which developed 20
years ago. If the trend*continues throughout 1950 the loss of farm
income will be such as to cause serious concern. Farm incomes in
1949 were down nearly $4,000,000,000, or 22 percent below the 1947
peak. In itself, a fall from inflationary to healthy levels is obviously
not dangerous. But should farm incomes in 1950 continue to fall,
business and industry as well as agricultural producers may have
cause to be disturbed. Data through April show a continued decline
in farm income below 1949 levels, even though farm prices have risen
somewhat.
Furthermore, as technological improvements continue and produc­
tivity rises, business and industry are able to cut costs and labor forces
at the same time. Such, according to a survey published by the
Federal Reserve Board in its May 1950 Bulletin, seems to be happen­
ing again at this time. Eventually such increases in productivity
represent the only source out of which higher levels of living can be
produced. But all past experience indicates that unless these benefits
of productivity are somehow speedily and voluntarily passed on to
consumers in higher incomes or in lower prices, markets will dry up
as unemployment increases. Then prices will be forced down by the
compulsion of depression, but at great cost to the prestige of the free
private-enterprise way of life.
Another trend adverse to an expanding market is to be found in
the fact that despite lower wholesale prices and decreasing prices of
some commodities as outlined above, consumer prices are being kept
so high that consumer buying power, especially of those in the lowest
four-fifths of the income scale, is being undermined. About 11,000,000




JOINT ECONOMIC REPORT

9

income recipients seem to have parted with all of their E bonds since
1946. In the last half of 1949 the volume of installment credit, now
at an all-time high, rose at the rate of $300,000,000 a month, or 3
percent, although total personal income was remaining stationary.
At all levels of income there are those who save and those who do
not. In 1945 even the lowest fifth in the income scale on balance
made ends meet. The reason in part was that they could not buy
consumer durables, but also that per capita real incomes were very
close to the all-time high reached in 1944. Since 1945 the dissavings in
the lowest fifth have exceeded savings by increasing amounts. Since
1947 this has also been true of the next fifth in the income scale. In
1948 the sum of the dissavings in the lowest two-fifths of the income
scale was so large that the net savings of the third and fourth fifths in
the income scale were barely enough to offset them. In other words,
the savings of the lowest four-fifths taken as a group was actually
almost zero. Were it not for those in the top fifth of the income scale,
that is, those getting over $4,500 in 1948, there would have been
practically no net savings. It was the top fifth of the income scale,
as rated by the Federal Reserve Board, which in 1948 did 99 percent
of all the net saving of the people of the United States.
Obviously, the business market depends upon the capacity of the
people to buy and use the commodities and services in which business
deals. There can be no prosperous civilian market without strong
civilian purchasing power. It is not surprising, therefore, in the light
of income and unemployment figures, that capital investment expend­
itures declined in 1949. Will they decline again in 1950? And if so,
why? War-accumulated backlogs, some business economists tell us,
may be almost made up by the middle or the end of 1950. Construc­
tion, other than housing, may also taper off in 1951 and foreign in­
vestment expenditures, including funds spent under the European re­
covery program, are also scheduled to drop. Thus the market to
which business and industry have been able to look by reason of the
international program may dwindle.
What the result may be if these factors are not counteracted by
positive policy may be seen in some of the reports from the smallbusiness front. Little and local businesses have suffered a steadily
declining trend in profit rates since 1947. In 1949 business failures
increased 75 percent over 1948. Those who discontinued operations
exceeded the number of new entrants into business by 70,000. It is
true that General Motors reported peak profits of $656,000,000 in 1949;
it is true that United States Steel, Bethlehem, and Republic showed a
most healthy profit status in 1949 as compared with 1948 and all pre­
vious years. But the rate of profit for businesses with assets less than
$250,000 has declined by more than two-thirds since 1947,2 and still
trends downward.
These are the circumstances which require an examination of policy
and program divested completely from all considerations of special
interest, class, or partisan conflict. By what we do in 1950 and 1951
we shall be arming or disarming the free enterprise system in its
conflict with communism.
* This is the first year for which reliable data on profits by size of corporations became available. ""1947
may have have been a bonanza year for small business. It may not. It was the first year for which reliable
statistics are to be had.




10

JOINT ECONOMIC REPORT
A PO SITIVE PROGRAM TO STRENGTHEN TH E SYSTEM OP
PRIV ATE PRO PERTY

In the light of these facts there clearly emerges the basic need for a
positive program to strengthen and expand the system of private
property. Private and public policies mu/st go hand in hand. Pri­
vate economic policies provide the motive power for economic activity,
public policies the framework. A sound program must be based on
the understanding that at this juncture of world events, the interests
of each must be democratically blended to achieve maximum effective­
ness for the interest of all. “ For all to thrive and prosper together,
all must work together—with mutual understanding and common
purposes.”
The program recommended by the President in his Economic
Report consists of 12 interrelated proposals:
1. Revise the tax structure to reduce present inequities,
stimulate business activity and yield a moderate amount of net
additional revenue. In a subsequent tax message to the Congress
the President urged, among other measures, a reduction of warimposed excise levies, reduction in depletion allowances, the
closing of income and estate tax loopholes, and a revision of the
“ notch” rate for small business.
2. Stimulate private investment in middle-income housing.
3. Increase the maximum maturity period for business loans
made by the Reconstruction Finance Corporation.
4. Improve the protection of farm incomes* and encourage
needed shifts in farm production by authorization of production
payments and other measures.
5. Establish a Columbia Valley Administration, and authorize
the St. Lawrence seaway and power project.
6. Provide Federal aid to elementary, secondary, and higher
education including medical education, improve local health
services, make grants to States for surveys of needed school
construction.
7. Extend and liberalize social security by improving old-age,
survivors, and unemployment insurance, enact disability and
health insurance, expand grants-in-aid to States for public as­
sistance.
8. Extend rent control for another year.
9. Continue the foreign recovery program on a basis commen­
surate with need.
10. Approve the charter for the International Trade Organiza­
tion.
11. Authorize the program for technical assistance to under­
developed areas, and for guaranties by the Export-Import Bank
against risks peculiar to private investment abroad; and revise
tax laws governing taxation of income from foreign sources.
12. Provide additional authority over banking reserves to the
Board of Governors of the Federal Reserve System, extend it
to all banks insured by the Federal Deposit Insurance Corpora­
tion, restore its authority to regulate consumer credit, and provide
authority to modify speculation on the commodity exchanges.




JOINT ECONOMIC REPORT.

11

U N IT Y IN TH E CONGRESS

One of the luxuries of peacetime is that of emphasizing differences.
But in times of stress it is well to hold steadfast to that which unites
rather than separates. Such is eminently needed in considering the
President’s proposals. While differences in detail, in method, and in
emphasis come to mind with easy alacrity, only a little mature reflec­
tion is needed to uncover a basic structure of genuine agreement con­
cerning fundamental principles and problems.
Responsible statesmen of both parties and of divergent political
opinions have repeatedly recognized most of the problems to which the
President’s proposals are addressed—namely, the need for a thorough­
going revision of the tax structure, the desirability of making institu­
tional changes to foster small business, a sound farm program, ex­
panded development of natural resources, more abundant educational
opportunity, a sounder social security system, appropriate economic
assistance to the free nations and underdeveloped areas of the world,
and continuous improvement when needed of our banking system and
monetary and credit policies.
Such disagreement as exists pertains to questions of method, or of
timing, or other detail. To cite a few examples. In the state of the
union message in January 1949 the President said—
the present coverage of the social-security laws is altogether inadequate and benefit
payments are too low. * * * We should expand our social security program,
both as to size of benefits and extent of coverage against the economic hazards of
unemployment, old age, sickness and disability.3

With this observation few would disagree, though there will continue
to be honest divergencies of opinion hammered into policy in the cruc­
ible of democratic debate concerning such aspects of the problem as
the amount of increase to be granted, the method of financing, the
extent of the increase in coverage, timing, administrative mechanism
and other details of when, how, to whom, in what way, and so forth.
Another illustration of the manner in which legislation responds to
fundamental economic necessities, regardless of party lines, is that
offered by the reciprocal trade program. There have never been any
large-scale or serious disputes about the desirability of the objectives
which the trade agreements program seeks to attain. Whatever
specific attacks made upon the program were based not upon any
doubts concerning the advisability of promoting world trade but rather
upon the method by which the agreements should be made effective.
An issue over the extent to which congressional power should be dele­
gated does not necessarily involve a division of opinion with respect to
objectives.
Similarly, the debate in the Seventy-ninth, Eightieth, and Eightyfirst Congresses centered largely on the establishment of so-called
“ peril points.” Such differences about details ought not to obscure
the fact that on the fundamental need for effective policies to deal
with foreign trade problems there is much genuinely basic agreement.
Thus the programs for economic and military rehabilitation of
Europe and the foreign-aid programs have in principle been accepted
by most of the members of both parties. Extended as the debates
may have been they have been confined to relatively minor differences
* H. D oc. 1, 81st Cong., 1st sess., p. 5.




12

JOINT ECONOMIC REPORT

concerning amounts, the length of time the program may have to be
continued, areas to be included, etc.
A few other examples in the domestic scene readily come to mind.
There is no disagreement among the people or their legislators as to
the necessity or propriety of some form of farm-price support. The
basic fact is disputed by no one: Free competitive agriculture is so
intimately related to the national interest that extensive farm bank­
ruptcies and distress cannot be tolerated. Whether a given crop
should be supported or not, whether it should be supported under one
parity formula or another, whether it should be supported by one
administrative technique or another, these are proper subjects of dis
cussion. But they are secondary to the truth on which all are agreed;
namely, that the Government must play an active role in influencing*
the prices which American farmers receive for their products.
There are many activities on the part of the Government such as
the provision of storage facilities for agricultural products or the en­
couragement of rural telephone service, which receive large bipartisan
support today though a generation ago any such program would have
been regarded by most people as an unheard of intervention of Govern­
ment in economic matters.
On the matter of price and credit controls differences arise legisla­
tively over when and how they should be terminated after the war,
but not a single representative member of either party can be said
to have wanted or advocated them as a permanent or desirable device
in a peacetime economy. Similarly, the recognition of the need for
governmental encouragement of housing has not been confined to one
political party or the other. On one of the most discussed issues
today; namely, the governmental budget, there is almost universal
agreement on the desirability of a balanced budget though views on
practicality and method may diverge ever so widely.
Finally, it is well to recognize that “ political” differences con­
cerning the choice between Federal and State agencies are essentially
only divergences concerning means, not ends. They may have great
significance from the standpoint of whether or not the ends are to be
obtained economically and efficiently, but they have little to do with
the widespread acceptance of the need for action on the part of govern­
ment. There is no disagreement over the major issue; namely, the
need for supporting the private property system and the profit
motive by appropriate safeguards enforced without fear or favor.
U N ITY IN

THE

PROGRAMS

OF BUSINESS,

LABOR,

AND

AGRICULTURE)

Similarly, outside of government and even among groups sometimes,
at odds with each other, American economic opinion is much more
unified in its basic beliefs than is generally recognized.
There is a compelling unity of general views expressed by the
programs advanced by a wide variety of business groups and economic
organizations speaking for labor, agriculture, and other important
segments of the economy. The diversity of these interests tends to
emphasize points of difference, and to overshadow the binding force
of the goals and ideals which all share and, the identity of the assump­
tions which all make with respect to the needs of the economy, the
essential aims of legislation, and the mutual responsibilities of govern-




JOINT ECONOMIC REPORT

13

ment and industry in promoting the well-being and highest level
performance of the economy.
A brief survey of some of the more prominent programs indicates
that although there are numerous controversies concerning particular
remedies for special situations, or concerning the steps that Govern­
ment should take in regulating or relieving points of friction in the
economy, the areas of accord far exceed the areas of dissent and dis­
pute. Thus the National Association of Manufacturers and the
American Federation of Labor, as well as the National Grange, agree
that excise taxes should be scaled down or repealed. The Committee
for Economic Development and the Congress of Industrial Organiza­
tions agree that effective aids to smaller business are necessary parts
of a general effort to achieve greater economic stability. The Con­
gress of Industrial Organizations, the American Farm Bureau Federa­
tion, and the National Association of Manufacturers all agree on the
need for enforcement of the antimonopoly laws. Veterans’ organiza­
tions, farmers’ associations, manufacturers, and labor unions are
equally concerned to find ways in which the economy can develop and
apply fiscal policy without overburdening taxation. Almost all of
these groups assert the necessity for government to increase trade with
the rest of the world on a basis of fair exchange. Uniformly there is
recognition of the inescapable functions of government in providing a
strong defense against aggression, a wider and even more efficient
system of basic social security, and the maintenance of equity in the
market for agricultural products.
Even on the most difficult points and the ipost controversial ques­
tions, it is evident that no important sector of opinion believes that
industry alone can assure stability and growth without the facilitation
by government of those policies which are necessary to the operation
of a democracy in the economic sphere. At the same time, it is ap­
parent that none of these great segments of the Nation subscribes to
the belief that government can or should attempt to apply control
methods as the primary means of assuring stability and progress. It
is realized that the division of responsibility between government and
industry is the only acceptable principle upon which economic growth
can occur, and that the efforts of industry and government must
complement one another if these ends are to be realized.
The simultaneous recognition of some problems, the temperate and
deliberate restraint of the proposals made most of the time by these
groups confirm the conclusion that all are equally aware of the delicate
decisions that lie ahead for the American economy. There is a desire
evinced in every group,4 no matter how partial it may be to its own
immediate interests, to strengthen the framework of the economy as a
whole, and to incresae its ability to cope with the shifting phases of the
international economy by setting an example for the rest of the world.
This is a democratic economy in action.
RECOMMENDATIONS

If the system of free enterprise within a private property economy
is to survive, it must provide sufficient consumption and private
investment to maintain a reasonable maximum of employment of the
* For an abbreviated version of the main proposals made by each group, see appendix A, item IX .
66696— 50------- 2




14

JOINT ECONOMIC REPORT

Nation’s labor force, with Government purchases of goods and serv­
ices and hence Government taxes restrained to the minimum con­
sistent with efficient government.
Every recommendation of this committee has been made to pass
three fundamental tests:
(1) Does it strengthen and expand the individual freedom
enjoyed by the millions of our population, or does it weaken and
impair the dignity and worth of the individual citizen?
(2) Does it contribute to the attainment of peace and the
increase of prosperity for the maximum number of our citizens?
(3) Does it promote the conditions under which private enter­
prise can find maximum opportunities and incentives to fulfill its
role in expanding activity in both existing industries and newer
types of production, and thus to increase national income and
available employment?
Very few will disagree with the importance or validity of these
tests. Nor will there be any large number who are unwilling to accept
such derivative principles for action as the following:
(1) All groups stand to gain more from continued economic
growth and from tireless alertness in removing obstacles to such
growth than they can possibly gain by factional strife for larger
shares in existing production,
(2) Such economic growth requires vigorous maintenance of
the mass market through progressively wider sharing of the
benefits of technical progress.
(3) This growth can come only through conscious purpose and
hard work which will raise the per capita productivity by 2 to
2K percent per year. The price of such increased productivity
will be the task of ensuring employment opportunity for the mil­
lion to million and a half (2 to 2% percent of 60 plus million) that
need to be absorbed.
(4) The fiscal policy of the Federal Government must be de­
signed to make a positive contribution to the growth and stability
of the economy (a) by rigorous governmental economy in line
with the Hoover Commission recommendations; (b) through
programs of development of human and physical resources which
provide a broadening base and expanding opportunities for
economic growth; (c) by redesign of the tax system such that it
will contribute to maximum employment opportunity through
expansion of mass purchasing power and business activity. To
this end the governmental “ cash budget” is more important than
the “ conventional” or “ administrative” budget.
(5) Trouble spots, such as exist in the coal industry, must be
dealt with vigorously even when they appear in times of general
prosperity, lest by the economic contagion of uncertainty and
insecurity they impair the general economic health and by their
mere existence give gratuitous aid to subversive propaganda.
(6) Fiscal, monetary, and regulatory policies of the Federal
Government should be directed toward encouraging free entry
for new, independent, small, local, private enterprises and fos­
tering their growth once established in proportion to the ability,
energy, enterprise, and creative initiative of their managements.
- (7) Boundaries of fair play should be set for pricing and com­
petitive activities of private enterprises and groups so that




JOINT ECONOMIC REPORT

15

destructively low prices are avoided on the one hand, and, on
the other hand, large agglomerations of economic power are
prevented from dictating prices to consumers and other group3
and from raising prices so high as to constrict capital inyestment
and lower the general level of economic activity.
COMMENTS ON THE PRESIDENT’ S LEG ISLATIV E RECOM M ENDATIONS

The specific recommendations of the President should be considered
in the light of the foregoing, constant caution being taken to hold
firmly in mind the extent to which basic agreement exists with respect
to Government policy lest that all-important fact be obscured by
minor disagreements over details.
1. What Congress should do or will do with respect to the revision of
the tax structure will depend, first, upon its decision concerning the
things that government is called upon to do; secondly, upon the
willingness 01 Congress to raise the revenue to pay for them; and,
thirdly, upon the desirability of tax reduction as compared in impor­
tance with the activities to which revenue must be devoted. Excise
taxes which hamper business by retarding sales or restricting produc­
tion should be reduced or even eliminated, but action which merely
cuts the revenue, without expanding business, would not aid the
Government in performing the functions which Congress by sub­
stantive legislation directs the Government to perform. Indispensable
to such a program of intelligent revision of the tax structure is, of
course, a knowledge of the facts concerning the impact of various
types of taxes on employment, on investment, on consumer purchasing
power at various levels of income, and on production. A study of
the incidence of taxation to appraise who actually does pay the taxes
will be stimulated or undertaken by this committee.
2. The President’s recommendation with respect to middle-income
housing is another illustration in point. In this instance Congress in
the Housing Act of 1950, though it rejected that portion of the Presi­
dent’s recommendation relating to cooperative housing, has by
overwhelming vote of both parties continued and expanded the middleand low-income housing program. While Congress is not called upon
to levy additional revenue to support middle-income housing loans,
it must continue to provide revenue to carry on the housing program
already approved.
3. The proposal to increase the maximum maturity period for
business loans by the RFC is a minor part of the program for the
encouragement of expansion of private business contained in the
President’s message of May 5 which is now under study by the respec­
tive Banking and Currency Committees of the House and the Senate.
A surprising amount of evidence has come to light indicating the wide­
spread aid which the RFC has rendered to businesses that otherwise
were without access to needed financial resources. But the objective,
namely, the development of better methods for financing small, local,
competitive business, is much broader and much more important
than the extension of maturities for RFC loans.
4. That farm income should be protected and farm production
stabilized all will agree. The same is true with respect to the inade­
quacy of existing law. The committee, therefore, feels that Congress
must attack this problem with the purpose of securing stabilization




16

JOINT ECONOMIC REPORT

of both production and income without waste of public funds and
in full realization of the international impact of alternative types
of farm-support policies upon foreign trade and domestic employ­
ment. Preliminary data on agriculture and spot-check reports now
becoming available in the census of 1950, indicate the vital impor­
tance of the study which the committee is undertaking of the effects
of various farm-price-support programs on farm families at different
income levels.
5. Likewise, the President’s recommendation for the establishment
of a Columbia Valley Administration and the authorization of the
St. Lawrence seaway are proposals to which the committees in both
Houses have been giving attention. Each of these proposals, if
adopted, would have a substantial economic effect. Not only are
progressively increasing amounts of power required to match the
needs of a rapidly growing population and an expanding economy,
but they are indispensable to maximum national strength. Al­
together aside from the debate over public power, proposals such as
these are obviously programs the authorization of which should
depend upon the judgment of Congress, including such matters as if,
how, and when they are to be fitted into the over-all Government
program for national defense and the establishment of world peace
and the extremely heavy expenditures thereby now being incurred.
6. Federal aid for education, Federal cooperation to improve local
health services, and Federal grants to the States for surveys of needed
school construction are all designed to increase human productivity,
improve human resources, and thereby promote business expansion.
The spurt in our population since the war will increase the number of
children in elementary schools by over 30 percent during the next
5 years. In many States the provision of additional facilities ought
no longer to be delayed. In other areas the need for a program of
Federal aid can await the final decision of Congress with respect to
revenue.
7. The expansion of social security is another policy designed to
protect human capital resources and increase the productivity of our
manpower. The House of Representatives has already acted favor­
ably on this recommendation and the Finance Committee of the
Senate is similarly urging favorable action, although with a few
alterations in the House bill. During the past year the problem of
industrial pension systems and their impact on.employment and pro­
duction has aroused such widespread interest that this committee has
requested the National Planning Association to undertake a compre­
hensive survey of private pension plans, with recommendations to be
available during the next Congress.
aS
8. With respect to rent control, both the House and the Senate
have passed bills extending the present law for limited periods through
areas that officially take affirmative action may thereby secure extention of rent controls for the full year. This recommendation is an
illustration of the manner in which on many items the principal
difference of opinion relates only to the speed with which Government
controls may properly be abandoned.
9. The foreign recovery program is part of the Nation’s foreign
policy. Congress has expressed its judgment by passing the sub­
stantive law which provides not only monetary aid to participating




JOINT ECONOMIC REPORT

17

countries but technical aid and services to underdeveloped areas
throughout the world. Such policies, implemented as they are by
heavy expenditures, are bound to have a definite and substantial
economic effect. These are eminently policies of the kind to which,
reference has been made earlier in this report; namely, policies which
though they place a heavy drain on the resources of the country have
been regarded as necessary and desirable because of the conviction
that they will prevent economic disaster upon a world scale and pro­
mote world peace.
10. Congressional action upon the charter for an International
Trade Organization is not to be expected at this session of Congress;
It is advanced as a proposal which will promote world trade, a wholly
desirable and necessary objective, but Congress in considering it
must do so in the light of the effect of the charter itself in all its details
upon the basic objective of world peace. The extent to which an
International Trade Organization can be established before the peace
treaties have all been written will largely affect the timing, if not the
detail, of such a program.
11. The provision of technical assistance for underdeveloped areas
throughout the world, as included in the recently extended foreign
recovery program, and the guaranties by the Export-Import Bank
against risks involved in the investment of private capital abroad, as
provided in bills reported by banking and currency committees of
both the Senate and the House, are designed to promote the develop­
ment of foreign markets and the investment of private capital in
foreign lands. Unless these markets are developed the world will
lack the purchasing power necessary to sustain the expansion of
facilities for production. When real peace comes and expenditures
for national defense and foreign economic recovery are curtailed a
vacuum will be created of most dangerous potential unless the under­
developed areas of the world are expanded.
In order to appraise the impact here and abroad of such changes in
economic assistance programs, this committee will endeavor to
familiarize itself not only with the programs and policies which legisla­
tive and administrative bodies with responsibilities similar to ours
are contemplating and putting into operation abroad, but with the
work that is being done by the Economic and Employment Commis­
sion of the Economic and Social Council and other organs of the
United Nations on “full employment” problems. The ability of the
United States to sustain an intelligent foreign economic program will
depend on the maintenance of a sound and active economy at home,
such as was envisaged by the Employment Act of 1946.
12. Authority of the Board of Governors of the Federal Reserve
System over banking reserves, its extension to FDIC insured banks,
authority in the Board of Governors to regulate consumer credit and
speculation on the commodity exchanges are suggestions which in­
volve again the question of the extent and nature of central controls.
The President’s recommendation with respect to commodity specula­
tion is not understood to involve any additional authority for the
Federal Reserve System, but rather to amount to a redefinition and
broadening of the powers of the Secretary of Agriculture under the
Commodity Exchange Act. His recommendations with respect to
the Federal Reserve System doubtless proceed from a realization of
the fact that with a national debt of $257,000,000,000 desirable




18

JOINT ECONOMIC REPORT

national policy requires a close scrutiny over banking and commercial
activities which could rapidly expand private debt.
COMMENT

ON

S U B C O M M IT T E E

REPO RTS

AND

R E C O M M E N D A T IO N S

No further detail in the way of recommendations need be offered
at this time inasmuch as the Joint Committee on the Economic Re­
port during the past year, through four subcommittees, has made
intensive studies of major economic problems facing the Nation, in­
cluding, in addition to the price increases in steel in December 1949,
most of the areas covered by the Presidents Economic Report. Staff
studies, hearings, committee and subcommittee reports on these
problems have already been published and transmitted to the Con­
gress early this session. These reports contained specific recom­
mendations with respect to the steel industry; monetary, credit and
fiscal policy; investment; unemployment; and low-income families.
These recommendations are summarized in appendix A, item VIII of
this report. Many have already been embodied in bills now before the
Congress, some are part of the proposals already made by the President
in special messages, e. g., those on taxes and on small business.
It is significant to note the degree of unanimity of the members of
the four subcommittees with respect to their reports. The Monetary,
Credit, and Fiscal Policies Report was signed by four subcommittee
members. Though not filing a minority statement, Representative
Patman reserves judgment on some of the major recommendations.
In addition, three footnote dissents were registered on specific points.
The Unemployment Subcommittee Report was unanimous. The
Low-income Subcommittee Report was signed by four of the five
members, Representative Rich filing minority views. The Invest­
ment Subcommittee Report, while agreed upon by all, was signed by
three members, the other two members filing a supplemental state­
ment. In view of such almost unanimous action on the part of the
respective subcommittees, we feel that their recommendations merit
serious consideration by the appropriate legislative committees, in
compliance with section 5 of the Employment Act of 1946.
One issue considered by the Subcommittee on Monetary, Credit,
and Fiscal Policies has continued to be a topic of particularly lively
debate—namely, the question of the relationship between the De­
partment of the Treasury and the Board of Governors of the Federal
Reserve System, in particular the impact of debt-management policies
on th& scope and effectiveness of monetary controls and fluctuations
in the interest rate. With a Federal Government debt of over
^$250,000,000,000, a 1-percent rise in the interest rate involves an
'increase in interest rates that has occurred since 1945 is in part
reflected in the increase of over $1,000,000,000 in the interest obliga­
tions the Government has this year despite the fact that the total
i Federal debt is somewhat lower. How much further should interest
rates be allowed to rise or should they be reduced or should they not
be allowed to rise any more? What policies should be given priority?

The position on this thorn}' problem taken by the Subcommittee on
Monetary, Credit and Fiscal Policies was as follows:

| * * * an appropriate, flexible, and vigorous monetary policy, employed in
| coordination with fiscal and other policies, should be one of the principal methods
I used to achieve the purposes of the Employment Act. Timely flexibility toward
easy credit at some times and credit restriction at other times is an essential
characteristic of a monetary policy that will promote economic stability rather




JOINT ECONOMIC REPORT

19

than instability. The vigorous use of a restrictive monetary policy as an anti­
inflation measure has been inhibited since the war by considerations relating to
holding down the yields and supporting the prices of United States Government
securities. As a long-tun mattter, we favor interest rates as low as they can be
without inducing inflation, for low interest rates stimulate capital investment.
But wevbelieve that the advantages of avoiding inflation are so great that a
restrictive monetary policy can contribute so much to this end that the freedom
of the Federal Reserve to restrict credit and raise interest rates for general stabil­
ization purposes should be restored even if the cost should prove to be a significant
increase in service charges on the Federal debt and a greater inconvenience to the
Treasury in its sale of securities for new financing and refunding purposes.
We recommend as means of promoting monetary and debt management policies
that will contribute most to the purposes of the Employment Act.
That Congress by joint resolution issue general instructions to the Federal
Reserve and^Ee“Treasury regarding the objectives of monetary and debt-management policies and the division of authority over those policies. These instruc­
tions need not, and in our judgment should not, be detailed; they should accom­
plish their purpose if they provide, in effect, that (i) in determining and admin/istering policies relative to money, credit, and management of the Federal debt,
/ the Treasury and the Federal Reserve shall be guided primarily by considerations
/ relating to their effects on employment, production, purchasing power, and price
I levels, and such policies shall be consistent with and shall promote the purposes
j
of the Employment Act of 1946; and (ii) it is the will of Congress that the primary
power and responsibility for regulating the supply, availability, and cost of
credit in general shall be vested in the duly constituted authorities of the Federal
Reserve System, and that Treasury actions relative to money, credit, and trans
actions in the Federal debt shall be made consistent with the policies of the
Federal Reserve.

V

To this proposal the Council of Economic Advisers, in reply to a
questionnaire by this committee, raised the following objections:1
Despite the drumfire of criticism which has been directed at the debt-management
policy from certain financial quarters, the judgment of the President that it has
been “ eminently successful” is wholly justified by the record of the past 5 years.
Our economy was unshaken by an immediate postwar slump which brought a
decline of more than 60 percent in production of durable goods, a substantial
decrease in nondurable production, and an increase in unemployment even when
millions of war workers were withdrawing from the labor force. The policy made
available abundant and cheap credit to business when it then endeavored to carry
its share of the responsibility in the race with inflation by increasing productive
capacity. It also helped to reduce a critical housing shortage. It contributed
to the conditions under which the expected flood of liquidation of savings bonds
did not materialize, and sales of savings bonds have continued in large volume.
It preserved a solid credit position for the Government when the great economic
question arose whether the end of inflation would become the beginning of econ­
omic collapse. It has even added to the prosperity of some custodians of funds
who disdain it but who would have wholly inadequate outlets for the swollen de­
posits created by the war if they did not know that they can safely invest in
Government bonds because the market price will be supported.
This is the record of the policy which the subcommittee would now abandon.
What is the record of the proposed substitute policy of flexible monetary and
credit control by the Federal Reserve System, when we look to its service in
establishing economic stability? The subcommittee speaks of the desirable
characteristics of central bank operations, and it is entirely justified in praising
them for flexibility and because they are indirect and do not entail positive action
by Government which limits the freedom of businessmen. But when it comes to
considering their effectiveness in attaining the objectives of the Employment Act,
the subcommittee only says that we can draw no conclusions from experience
because we have never really tried to use these policies to counteract serious in­
flation or deflation.
We do not read history that way. For 35 years, Federal Reserve discount
rates have been shifted up and down. For 25 years the System has carried on
open-market operations. Changes in reserve requirements have been one of the
tools of control for more than a decade. * * *
1Hearings before the Joint Committee on the Economic Report on the January 1950 Economic Report
of the President, 81st Cong., 2d sess., pp. 66-67.




20

JO IN T ECONOMIC REPORT

Repeatedly, in its discussion of this problem, the report of the subcommittee
speaks of the need for “ vigorous” use of central bank power. We assume that
it is meant that history furnishes no guide to action because central bank operations
have never been vigorous enough. If this also means that the writers of the
report look to the Federal Reserve Board to interpret the proposed congressional
directive as an instruction to use its power more vigorously in a future inflation
than they were used in the past, the joint resolution would indeed threaten untold
damage to Treasury operations. Before this war, the Board has only twice
been called upon to consider action in a period of important inflation. In 1920,
it ran the discount rate up to 7 percent. In 1929, it pushed the rate up until it
reached 6 percent. The de.bate still goes on, whether the high discount rates
caused the ensuing catastrophes or whether the economic collapse was in each
instance due to forces which not even 7 and 6 percent discount rates could quell.
But certainly the Reserve Board is not open to the criticism that it has not used
its power vigorously. If that record shows that even more violent effort would
be necessarily in order to make central bank operations effective to curb an
inflationary movement, we believe the conclusion should be that these particular
anti-inflationary devices are altogether too dangerous to justify giving to them
the premier position among the arsenal of weapons to gain economic stability.

In view of the extraordinary gravity of the problems of debt manage­
ment, inflation, and flexible use of monetary and fiscal controls, this
committee feels it necessary to urge further careful study of this
problem not only inside but outside the Government, by all groups,
whether financial, industrial, academic, labor, or institutional that
seek a maximum use of financial, fiscal, and monetary controls as
instruments for achieving maximum employment opportunity.
Of correlative importance, a major and comprehensive study should
be made of the present status of competition in our major industries,
and methods whereby free competitive enterprise can be preserved,
restored and strengthened. One task for such a study would be that
of evaluating bigness peril points. What are the factors that bring
about bigness? In howfar is bigness inevitable and compatible with
the principles of the Employment Act of 1946? How large can govern­
ment, business, labor and agricultural organizations become before
they in fact nullify freedom of entry and fair competitive opportunity?
Such peril points to free enterprise are difficult to estimate, even in
terms of the percent of output or of sales or of employment or of assets
concentrated in the hands of one or a few firms. Such bigness peril
points are even more difficult to estimate in terms of other leverages
equally strategic and vital such as political influence at State, local,
and national capitals; direct and indirect controls over patents, raw
materials, sources of credit, prices, and news channels; open and
clandestine managerial, legal, and financial interrelationships; and
many other mechanisms for the zoning and exercise of economic power
now becoming apparent since the end of World War II in actions under
the antitrust laws, in reports of numerous cartel and other economic
investigations, and especially in the wealth of new information that is
being yielded by the decennial census of population, manufactures, and
commerce of 1949. In the light of postwar national responsibilities to
maintain high-level employment and continuous preparedness, a fresh
appraisal of the status of competition is urgently required for intelligent
formulation of wise national policy.
The accompanying staff report, which is submitted herewith as
evidentiary material and not as indicating the conclusions of the com­
mittee, provides more recent supplementary information on several of
these problems, and indicates additional areas that the committee
plans to explore during the coming year.

i




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JOINT ECONOMIC REPORT

The committee reiterates its continuing interest in, and support of,
efforts to fill the “ statistical gaps” in the Government's program of
economic information. Appendix B of the supplementary staff ma­
terials indicates the progress made in the past year on this program
and outlines proposed work in 1950. In spite of commendable ad­
vance in these programs, there still remain gaps in the statistical
information needed for appraisal and formulation of policies.
The committee is glad to report the development of an increasingly
constructive relationship between the Council of Economic Advisers
and the joint committee. Full and free discussion of economic prob­
lems with those who have the statutory responsibility to advise the
President on economic policy is essential to a complete understanding
of the President’s Economic Report by the committee and, therefore,
to the committee’s fulfillment of its responsibilities under the Employ­
ment Act. The committee also wishes to express its deep appreciation
for the assistance and cooperation of other executive agencies and of
the standing committees of the Congress.
Majority members approving report:
J o s e p h C. O ' M a h o n e y , Chairman.




F r a n c is J. M y e r s .
John S park m an .
P aul D ouglas.
E d w a r d J . H a r t , Vice
W r ig h t P a t m a n .
W alter B . H uber.
F rank B uchanan.

Chairman.

SUPPLEMENTARY STATEMENT OF SENATOR DOUGLAS
I am in general accord with the views and recommendations
expressed in the report of the committee and have signed the report.
The statements calling for balancing the Federal budget in the present
period of relatively high prosperity are particularly commendable. I
only hope that Congress may implement this policy during the current
session. In my opinion this would call for a reduction in expenditures
of some $3,000,000,000 below the amounts recommended in the Presi­
dent’s budget so that the consolidated cash budget will balance. It
would also mean that the total reduction in excise taxes should not
exceed the total additions to the revenue obtained from tightening
some of the revenue provisions and closing some of the present tax
loopholes,
I personally feel, however, that the. report should also endorse the
principles of monetary and debt-management policies recommended
by the Subcommittee on Monetary, Credit and Fiscal Policies last
January. The subcommittee advocated greater reliance on monetary
controls and timely flexibility in the volume of credit obtained through
the use of open-market operations by the Federal Reserve System.
In my judgment, the Treasury should not veto the policies of the
Federal Reserve System in this direction merely because they might
I mean a moderate increase in interest rates and in the cost of servicing
the public debt. As pointed out by the subcommittee report, a
clarification of responsibilities of the Federal Reserve Board and the
Treasury for monetary and debt-management policies is also most
desirable. It should be made clear, however, that I favor the lowest
interest rates compatible with economic stability and growth and I
interpret the subcommittee’s report as setting forth principles which,
if faithfully administered, would result in a fluctuation of rates at a
low level and not at a high level.
I
P a u l H. D o u g l a s .

22




I . VIEWS OF THE MINORITY
I
Under the provisions of the Employment Act of 1946, which estab­
lishes the joint committee on the Economic Report, it is stated
that—•
it shall be the function of the Joint Committee (1) to make a continuing study of
matters relating to the Economic Report;
(2) Study means of coordinating programs in order to further the policy of this
Act; and
(3) As a guide to the several committees of the Congress dealing with legisla­
tion relating to the Economic Report, not later than March 1 of each year, to file
a report with the Senate and the House of Representatives containing its findings
and recommendations with respect to each of the main recommendations made by
the President in the Economic Report. * * *

In accordance with the law, we have considered the President’s
Economic Report submitted to the Congress on January 6, 1950, as
further developed in his tax message to Congress and in his message
dealing with small business.
A year ago we submitted our minority views indicating our dissent
from the basic philosophy of the President’s Economic Report of 1949,
and we call attention to the report which we filed at that time, and to
those general recommendations contained in that report (which we
incorporate herein by reference). We believe that those recommend­
ations, followed in general by the Congress, have proved sound. If
the present economic condition is considered satisfactory, as found by
the President’s economic advisers, it cannot have resulted from the
recommendations of the President in 1949 with which we differed.
Those recommendations in general were rejected by the Congress.
In our opinion, the President’s Economic Report should deal with
the basic economic policies of the Government without considering
the political implications of those policies. Undoubtedly, there will
be many times when the sound and proper thing to do from an eco­
nomic standpoint to prevent serious depression in the future will be
absolutely contrary to the politically expedient course at the
moment. That is the reason why men doubt whether any govern­
ment can eliminate depressions. The President’s message, like the
report of his economic advisers, is primarily a political document.
In January 1949 he was demanding additional powers to check in­
flation. These were not granted, and yet inflation ran its natural
course and came to an end, partly by the Government’s use of the
adequate powers which it already possesses. The President claims
that the slight decrease in prices which necessarily must have occurred
if inflation were to be checked, resulted in our paying a “high prices
for economic instability.” Now the President demands more powers
and policies for the purpose of starting inflation again.
It is also interesting that a year ago he criticized the amount of
money going into business investment as too large. Now he bewails
the fact that business investment in the fourth quarter of 1949 has
declined and has not kept pace with improvement in economic con-




23

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JOINT ECONOMIC REPORT

ditions. He seeks for means of increasing this business investment.
W e suggest that the President state the facts without trying to claim
credit for everything good that has happened and placing the blame
for everything bad on those who have opposed his policies.
APP R A ISA L OF PHILOSOPHY OF PRESIDENT’ S REPORT

The President’s Economic Report to Congress, together with the
report of the Council of Economic Advisers, is a detailed document
covering a vast array of economic facts, involved descriptions of the
operation and performance in many economic sectors, analyses of
developments which have brought us to our present economic position
and conclusions and recommendations for the future. Because of
its diffuseness it seems appropriate to summarize the approach and
conclusions as we see them, in order to achieve perspective of the
whole report, before proceeding to discussion of its major aspects
with which we are in disagreement. In brief, argumentation and
conclusions of the report seem to be as follows:
1. It is stated that, through the recession of 1949, the economy has
achieved greater stability, the fear of further inflation has passed, and
better economic balance has been developed.
2. A goal of $300,000,000,000 output by 1954 is set. Upon this
major premise rests most, if not all, the programs and policies advo­
cated in the report.

3. In achieving this goal the report assumes, along with expanding
population and labor force, an annual rate of increase in productivity
of 2 to 2% percent per year, or an extension of the long-time rate of
productivity increase from 1890 to date.
4. Businessmen are admonished to develop all possible investment
opportunities, and are assured these are in plentiful supply and need
only to be developed.

5. The Government’s role of high spending and its extension in
social programs, public medicine, Brannan farm plan, St. Lawrence
River project, Columbia Valley Authority, and others are considered
as integral and necessary parts of the economic expansion program and
the goal of $300,000,000,000 by 1954.
6. On the debt and fiscal situation, the report indicates that these
w ill automatically be taken care of by increased taxes yielded by ex­
panded incomes. Budget balancing will be achieved by having our
economy grow up to our spending habits if the economic goals are
achieved.
B u t whether the growth envisioned in the goals of the report will,
or indeed can, develop under the recommendations of the President
is subject to very serious doubt. In fact, such a program will even­
tually frustrate the basic processes through which growth has been or
can be achieved. It threatens to cripple the ability to carry out
existing programs affecting general welfare, or probably even worse,
achieve mere dollar goals through further inflationary effects upon the
economy.
The President, on the opening page of his report, summarizes what
a good job was done of adjusting the inflationary boom to “firmer
ground” and that “by no accident,” for which businessmen, workers,
farmers, and Government should congratulate themselves for their
“judgment and restraint” and “understanding.” It is noteworthy




JOINT ECONOMIC REPORT

25

that the transition, from inflation to greater stability, however, does
not appear to have resulted from recommendations of the 1949 Presi­
dent’s report. Many of those regarded as essential by the President
were not accepted or enacted into legislation by the Congress, includ­
ing:
1. $4,000,000,000 increase in corporate profits tax.
2. Consumer credit limitations.

3. Government authority to expand capacity.
4. Mandatory controls over materials in short supply.
5. Selective price and related wage controls.
6. Education and health programs, etc.
It would appear that the “ judgment and restraint” exercised was
that of the Congress, which refused to accept the recommendations,
thereby assuring business and industry and restoring confidence to go
ahead in the latter months of 1949.
The report states (p. 2): “ We have succeeded in avoiding a serious
set-back in 1949.” This implies that certain Government actions
were taken at that time to accomplish this end but these are not listed.
Rather it seems that a succeeding sentence perhaps best expresses
why the success was achieved:
The great motivating force in our economic system is the perpetual will (by
private initiative) to move ahead, to use our skills and our resources more effi­
ciently, to produce more at lower cost, and to provide a better and richer life for
all our citizens.

To this statement we heartily agree. Every effort to provide both
the political and economic atmosphere favorable to that motivating
force should be made now and in the future if our free society is to be
maintained.
The report further states (p. 2):
In earlier economic reports, I emphasized the dangers of permitting inflationary
pressures to continue, and urged measures to hold them in check. Most of these
measures were not adopted, and the break in the economic boom, against which
I had warned, came to pass. Six months ago, the Midyear Economic Report
pointed out the way to recovery. Additional steps should now be taken to
complete the process of recovery. We must not again make the mistake of failing
to adopt affirmative policies necessary for continued economic stability and growth.

If these measures had been adopted, their effect would certainly have
been to discourage and delay expansion of facilities and production
which are the only sure answer to inflationary tendencies. One of the
principal causes of continuing inflation was the successive rounds of
wage increases. Important work stoppages, making for scarcity
and disruption of production schedules were another important factor.
None of these causes, generally recognized by those who concern
themselves with the economics of inflation, were given any weight or
attention in any of the previous editions or the present edition of the
Economic Report.
It is doubtless comforting to read that: “ Six months ago, the
Midyear Economic Report pointed out the way to recovery.” It is
not at all clear what the report contributed or caused to be done that
brought about the recovery. Nevertheless, it serves to introduce the
conclusion, reiterated in substance throughout the report that “ addi­
tional steps should now be taken to complete the process of recovery.
We must not again make the mistake of failing to adopt affirmative
policies necessary for continued economic stability and growth.”




26

JOINT ECONOMIC REPORT

The flow of argument here, as throughout the report, is smooth and’
clever but pronouncements of this kind are hardly a good substitute
for economic analysis and sustainable logic. [Italics supplied.]
RECOGNITION OF PROBLEMS IN ECONOMIC TERMS

The undertaking on the part of the Federal Government to use all
reasonably practical means to promote maximum employment, pro­
duction, and purchasing power is not to be taken thus lightly. Fortu­
nately, the ability of the Government to make good on these declara­
tions has not yet been severely challenged. Postwar demands
and business expansion have postponed that day. The interim affords
an opportunity to examine and test the machinery available to
Government by which the ends of the Employment Act of 1946 may
be furthered.
Thoughtful and competent economists recognize the inadequacies of
even the best “ tools” available to Government for maintaining eco­
nomic stability. Honesty on the part of the Joint Committee de­
mands that it recognize this and that the problems cannot be solved
by omission or exhortation.
In general there are two conflicting views as to the proper approach
of government to the solution of these problems. First there is the
approach which relies upon detailed controls, a “planned” economy,
and a detailed attack upon prices, bottlenecks, and “needs.” The
other concept of the Government’s role in economic affairs places
greater reliance on broad climatic policy in the monetary, fiscal,
monopoly, and investment fields. Each year since the Employment
Act was enacted, reports of the Council of Economic Advisers and
policies of the President have consistently adhered to the first of these
alternatives. We have as consistently adhered to a preference for the
second method of dealing with economic problems.
The broad tools of monetary, fiscal, and monopoly policy which
truly liberal economists regard as the only means of promoting sta­
bility while maintaining a free government have received little support
from those presently in Government positions of economic power and
responsibility. The most useful tools have been thrown away; the
most effective weapons spiked by deliberate choice.
The President’s report 1 year ago, for example, concerned then
with the threat of inflation on the threshold of deflation stated: “ I,
therefore, recommend that the use of mandatory allocation powers be
authorized so that they may be employed upon a selective basis without
delay where they prove to be needed.” A further recommendation
stated: “ I recommend that selective price control authority should
promptly be made available to the Government.” These recom­
mendations are not cited for the sake of dwelling on the obvious
untimeliness which subsequent events have given to them. They
are cited as evidence of the basic thinking of the administration in its
attack on the problem of economic stability through specific controls,
rationing, and selective manipulation by Government. [Italics
supplied.]
The report transmitted in January 1950 is naturally less open in
its recommendations for detailed controls. Changed conditions and
the fresh memories of men had by that time made such an approach
less appealing as a cure-all. There is nothing in the new program,.




-JOINT ECONOMIC REPORT

27'

however, which suggests the slightest abandonment of the .specific
control philosophy. With any resurgence of inflationary tendencies
we may* look for the administration to again press for price controls
and all that goes with them.
Opposed to this type of approach, we believe that the tremendous
power which the Government holds over credit, monetary, and fiscal
policy offers the best methods of preventing depression and instability.
We believe that they are infinitely preferable to plans for controlling
details and closely regulating individuals in their economic choices.
In this we refer to this committee’s Subcommittee on Monetary,
Credit and Fiscal Policies. The subcommittee recommended—
not only that appropriate, vigorous, and coordinated monetary, credit and fiscal
policies be employed to promote the purposes of the Employment Act, but also*
that such policies constitute the Government’s 'primary and principal method
of promoting those purposes. [Italics supplied.]

We, therefore, welcome and concur in the recommendation made by
the subcommittee when it recommended principles for the guidance
of Federal fiscal policies. Stated briefly, the recommendation
follows:
We recommend that Federal fiscal policies be such as not only to avoid aggra­
vating economic instability but also to make a positive and important contribution
to stabilization, at the same time promoting equity and incentives in taxation
and economy in expenditures. * * * A policy that will contribute to stability
must produce a surplus of revenues over expenditures in periods of high pros­
perity and comparatively full employment and a surplus of expenditures over
revenues in periods of deflation and abnormally high unemployment. Such a
policy must, however, be based on a recognition that there are limits to thei
effectiveness of fiscal policy because economic forecasting is highly imperfect at
present and tax and expenditure policies under present procedures are very
inflexible.

It seems to us that it is the duty and responsibility of the Joint
Committee as a whole to urge that the weapon of fiscal policy, com­
mended by the subcommittee, be restored to usefulness.
After nearly 20 years of consecutive deficits—marked only by the
notable exceptions of 1947 and 1948—those in charge of Government
policies have apparently lost all interest in and power to use the
stabilizing effects of a surplus of revenues over expenditures. Fiscal
policy has become a one-way street with deficit spending the pattern.
Taxes are already so close to the upper limit tolerable in a peacetime
economy that they afford little flexibility on the up side. Deficit
spending is,- therefore, certain to continue so long as the administra­
tion flatly and summarily rejects the possibilities of reduced expend­
itures. Fully aware of the political inexpediency, if not economic
hazards, of further increasing taxes, it devotes its energies to arguing*
against the wisdom and even the possibility of reducing expenditures.
The military and foreign-aids needs called for by the cold war, it is
true, present a serious burden. We think it is, nevertheless, impera­
tive for those in positions of economic power to recognize that the
race in competitive armament may go on year after year. Does this
mean that deficits must be accepted as a way of life? If the genera­
tion is unfortunate enough to live in a world in which this exhausting
race is necessary, progress in other fields may have to be postponed.
Postponement, too, is a part of the cold-war costs. The choice between
pleasant expediency and temporary sacrifice is never an easy one but
we think it highly imperative that the Joint Economic Committee




28

JOINT ECONOMIC REPORT

begin pointing out as convincingly as it can that governmental pro­
grams cannot be increased or added to without increased costs. We
speak not simply of costs in the sense of Government expenditures
but in the use of resources and manpower and the sacrifice of alterna­
tives. The basic economic fact is that energies devoted to prepara­
tion for war cannot be devoted to other and more attractive peacetime
ends. It is a solution unworthy of any government to behave as if
government deficits may be run year after year, and decade after
decade with no costs to anyone or without the sacrifice of important
programs to the demands of more important ones.
The Joint Economic Committee is doing small service to the longrun stability of the country when it does not urge that fiscal “ policy”
means more than determining the amount of deficit to be incurred.
Fiscal policy is a two-edge sword, one edge of which has been dulled
by the policy of disuse.
Monetary and debt-management policies offer a second device by
which Government may bring its resources to bear on the economy
without resorting to detailed controls. This weapon, too, has been
blunted by the policy of the administration, with the approval of the
President and the Council of Economic Advisers. Interest rates as a
partial governor on the speed of the economy have been discarded in
favor of maintaining the price of long-term Government bonds.
Again we commend the recommendations of the subcommittee of
the Joint Economic Committee when it recommended that monetary
i policy be restored as an effective tool by congressional declaration if
necessary. The subcommittee recommended:
j
* * * that, (i) in determining and administering policies relative to money,
I credit, and management of the Federal debt, the Treasury and the Federal
j Reserve shall be guided primarily by considerations relating to their effects on
employment, production, purchasing power, and price levels, and such policies
shall be consistent with and shall promote the purposes of the Emp loyment Act
of 1946; and (ii) it is the will of Congress that the primary power and responsi­
bility for regulating the supply, availability, and cost of credit in general shall be
vested in the duly constituted authorities of the Federal Reserve System, and
that Treasury actions relative to money, credit, and transactions in the Federal
debt shall be made consistent with the policies of the Federal Reserve.

Administration of the public debt offers a powerful device for
stabilization. While much may be said from the standpoint of econ­
omy for maintaining low interest rates on Government securities,
the cheap-money policy means that control through interest rates is
abandoned as a stabilization device. With long-term 2% percent
IGovernment bonds now selling somewhat above par, the occasion
1offers an ideal time for arriving at a monetary policy for the future.
In the interest of minimizing the service charges on its own debt,
should the Government forsake the benefits of restricting bank and
investment credit at times when restriction would add to stability?
The costs of uncontrolled inflation to the Government are always
Sconsiderable and are likely far to outweigh the costs of increased
\
interest charges.
G O VERNM EN T R E SPO N SIBILITY TOW ARD PRIVATE INVESTM ENT

In terms of fulfilling the purposes of the Employment Act, nothing
is more important than the role of private investment, particularly for
new plants and improved equipment. Through this must come the




J o in t e c o n o m ic r e p o r t

29

creation of new jobs as well as the achievement of economic goals of
national income and a rising real income. In the 1949 report, the
President expressed concern that the level of investment was too high
or “not sustainable” and the proportion of consumption expenditures
was too low. In this year’s report, fear is expressed because the rate
of investment was falling and, if continued, would result in increased
unemployment. In its concerns for “ consumer purchasing power,”
and the distribution of income, the report fails to properly evaluate
the importance of jobs and incomes involved in high capital invest­
ment. About one-third of our industrial workers are engaged in
industries producing plants and equipment. High business invest­
ment, high employment, and high purchasing power have always
been achieved simultaneously, and necessarily so.
The report admonishes businessmen to—
* * * base their investment policies on confidence in growth, shape their
price policies to the needs of larger markets and proceed with vigor and ingenuity
to develop new and better markets of all kinds.

Elsewhere it exhorts:
* * * businessmen should grasp opportunities which lie ahead; and should
help to make the adjustments on prices and incomes which will translate potential
markets into real markets. The enterprise and imagination of private business­
men will be a crucial factor in achieving the upward growth of which our economy
is capable.

These and similar statements do not aid in achieving private action
for maintaining a high level of capital expenditures.
It is further stated:
There are ample funds available to businessmen who want to expand or build
new plants, to replace obsolete equipment or to extend their operations to new
geographic areas.

The evidence of ample funds is a challenge to put them to productive
use. In addition to funds, the important *
thing is to venture them in
job-creating enterprise. The report does not make any material sug­
gestions for improving incentives for investment, except extension of
maturity period for RFC loans. The President’s later tax and smallbusiness messages contain some further proposals designed to remove
the regressive “notch” feature in $25,000 to $50,000 corporate-tax
bracket, and other aids to small business. These, however, can hardly
be expected to affect greatly the totals of private investment and their
aggregate influence upon employment. Outweighing these proposals
in its impact on investment incentives is the recommendation to
increase corporate income taxes from 38 to 42 percent. This could
hardly be expected to bring about improvement in investment outlook
or business.
We believe that the greatest promise for a steadily expanding econ­
omy, including high-level employment and increasing real incomes, is
through high and relatively stable private investment. These will be
promoted only through recognizing the deterrents to business invest­
ment and creating the necessary private incentives for business and
private investors to assume risks. In our opinion, as stated in the
report of the subcommittee on investment, the principal deterrent to
investment today is taxes. This is especially true in regard to cor­
poration income, which is taxed at 38 percent and is again subject to
individual income taxes when distributed as dividends. Accordingly,
66696— 50------- 3




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JOINT ECONOMIC REPORT

many investors are driven to seek security at whatever sacrifice to
income from their savings, rather than become risk bearers in new
enterprise or even well-seasoned equity shares.
Of course, other aspects of the corporate tax system also adversely
affect the incentives as well as the sources for investment funds. In
particular, we believe tax policy should permit depreciation over
shorter period of years to encourage replacement of outmoded equip­
ment with newer, cost-reducing equipment.
In other respects, too, Government actions and policies threaten
the continuance of high-level investment by creating uncertainty and
undermining confidence. First of these is the failure to move in the
direction of a balanced budget. As long as we continue the easy road
of Government spending, even for “ desirable” projects and programs,
with no prospect of a balanced budget in sight, the result must be a
continuous state of apprehension, both by business and by investors.
The second is reflected in the attitude of Government toward
business in proposed legislation. In the 1949 report, the President
recommended—
* * * immediate legislation to deal with the problem of capacity and
supply * * * provide the funds to make careful surveys of future supply
needs and productive capacity * * *. To the extent that facts reveal the
need, it should provide additional authority to deal more effectively with in­
adequacy of capacity and supply.

This recommendation became embodied in the so-called Spence
bill (H. R. 2756) and though not acted upon, may still become pending
business of the Congress.
In the report “ December 1949 Steel Price Increases” the majority of
this committee recommended:
In the interests of preserving competitive free enterprise and protecting the
public from arbitrary increases in prices, this committee recommends that steel
producers file with an appropriate agency of the Federal Government their
schedules of proposed price increases, that speedily hearings be held to get the
facts on the reasons for, and general economic effects of, such increases, and that
such industry-wide price increases be deferred for a definite period of, for example,
30 days after such announcement. * * *
With the express purpose of revealing the effect on free, competitive enterprise
of present trends in the steel industry, a study should be authorized to examine
the extent to which the steel industry has developed technological and economic
similarity to public utilities and has acquired such strategic importance in war,,
peace, and in the maintenance of high-level employment as to become uniquely
affected with a public interest in order that the Congress may determine what,,
if any, legislation should be adopted for the preservation of competition.

Such proposals threaten the very foundation of private investment.
If the prospect of enactment of such legislation were imminent, how
could private capital be expected to flow into possible affected areas?
Fortunately, these particular proposals have made little progress as
yet toward enactment into legislation. They reflect, however, the per­
sistent attempt to substitute Government action in the field of private
investment and enterprise in place of appropriate incentives to permit
and encourage the flow of private funds to provide expansion and
growth that is required.
We suggest that the President’s report should consider and promote
the fundamental factors for private investment, rather than attempt
to plug the holes created by failure of Government policies to foster
private initiative and responsibility.




JOINT ECONOMIC REPORT

31

GOVERNM ENT SPENDING AND FISCAL POLICY

We have previously indicated our concern over the basic economic
threat of a loose Federal fiscal policy and continuing budget deficits.
We find the President’s neat and easy disposal of this problem totally
lacking in facing the economic realities. This is evidenced by his
statements on page 11 of the Economic Report:
* * * As business conditions continue to improve, we sholud bring Govern­
ment receipts and expenditures into balance, and provide some surplus for debt
reduction at the earliest date consistent with the welfare of the country.
* * * In the long run, the Government's fiscal position depends upon the
health of the national economy. * * * [Italics supplied.]

These are amazing statements in the face of current and expected
deficits under existing legislation. The recommendations of the
report, if enacted into law, would cost many billions more. The staff
of the Senate Committee on Government Expenditures under direction
of Senator McClellan has carefully reviewed the probable costs of 15
proposals for legislation recommended by the President and estimates
their initial annual cost at over $7,000,000,000 and ultimate annual
cost at over $25,000,000,000. Even if these estimates are reduced
by half, the result scarcely promises hope for a balanced budget in the
foreseeable future. It is noteworthy that the President’s report makes
no estimate of the cost involved in his 12-point program, either pres­
ently or in the future. We do not find convincing argument for meet­
ing large deficits and increased spending in such statements as: “ I f
the trend of business continues upward as it should, Federal revenue
will increase.” [Italics supplied.]
We are told that the domestic programs are essential elements
of an expanding economy and are an integral part of the achievement
of the “ goals,” and that “ Federal receipts should be sufficient over a
period of years to balance the btidget and provide a surplus for debt
reduction” and further, “ We should recognize that the expansion of
the economy will generate additional revenues and strengthen the
fiscal position of the Government.”
Thus it stated the major premise as well as fallacy of the report.
We are urged to spend money and create greater and continuing
deficits for new projects, extended social services, and more benefits
during a time of high national production to generate* greater income
to wipe out the deficits created through the programs. This is equiva­
lent to spending ourselves into and out of debt by the same transac­
tion—a process that never worked when tried in prewar years
nor is it any more likely to work now. With this boot-strap argu­
mentation of the President’s report the minority strongly dissents.
We return to the sentence quoted earlier: “ In the long run, the
Government’s fiscal position depends upon the health of the national
economy.” We are convinced that the converse has most important
application for a sound economy: “ In the long run, the health of the
economy is largely determined by, as well as dependent on, the Gov­
ernment’s fiscal policies and position.” And the long-run govern­
mental fiscal picture, considered either as to recent past performance
or future prospects or administration “ goals” is not a favorable one.
One major concern is the broad extension of Government activities
and expenditures at a time when continued deficits irreparably affect
the growth and strength of private enterprise, discourage incentives




32

JOINT ECONOMIC REPORT

of individuals to produce, save, and invest. The result of “ spend­
thrift” government places us in a most vulnerable position with the
first down-turn in economic activity, or any crises we may be called
upon to face.
SOCIAL AND POLITICAL PROGRAMS

We have discussed what we consider the principal areas which
come within the main task of the Economic Report and of this Joint
Committee: To maintain full employment and avoid recurrent
economic depressions. We have repeatedly suggested that the prin­
cipal attention of this Committee should be devoted to that problem
and not be too much diverted by the study of all the important but
complicated social welfare, health, education, and other problems
which have social and political aspects more important than their
•economic influence or significance.
The President’s report and the majority consistently give major
emphasis to these welfare programs as instruments for full employ­
ment and economic stability. Our main concern in regard to pro­
grams should be whether they may threaten to create excessive burdens
in their aggregate, create Federal fiscal problems, divert too much
resources from investment and economic growth and in the end make
for unemployment rather than employment. Except for these dan­
gers which we should carefully weigh in our over-all economic con­
siderations, these subjects are more properly matters for the state
of the Union message and appropriate legislative committees.
Other recommendations in the report we consider are designed
more for political appeal than as economic solutions. These include:
1. Production payments for agriculture (Brannan plan).
2. Columbia Valley Administration and St. Lawrence seaway
and power project.
3. National health insurance ^socialized medicine).
4. National rent controls.
5. Approval of charter of International Trade Organizations.
What we mean by the political nature of proposals put forth as
economic may be illustrated by the Brannan plan for agriculture.
This proposal in its broad appeal holds out the promise of guaranteed
high incomes for farmers and low food costs for consumers. The
indeterminable costs which must arise somewhere between these
noble objectives are to be made up by drawing on Government funds
probably to the extent of 5 or 6 billion dollars and conceivably much
more, and provided for out of further taxes or deficits. Juggling of
benefits and costs in this manner is hardly economics in the sense
contemplated by the Employment Act. Similar comments could be
made on other listed recommendations.
Accordingly, we have not discussed the President’s 12 individual
recommendations. Furthermore, as previously noted, proposed drafts
of the Committee report have only recently been submitted to us,
the latest revision on June 6. We do not desire to cause delay in
publication of the Committee report; this is a further reason for not
commenting in detail on the various recommendations at this time.
However, we desire the privilege of extending our comments and
analysis covering these and other matters at a later date.
We desire also to point out that the recommendations of the various
subcommittees referred to in the majority report and contained in




JOINT ECONOMIC REPORT

33

their supplementary staff report have not been considered by the
Committee as a whole. The agreement indicated in these reports by
the respective subcommittee members does not necessarily reflect gen­
eral agreement by the whole Committee or of the minority on ail the
many recommendations.
SUMMARY

We have pointed out our disagreement with the basic philosophy
of the President’s report. We have noted also our conviction that
the Joint Economic Committee should be “ facing up” to the basic
reality of its task. Our recommendations now would remain much
the same as they were in the 1949 minority report, with only slight
shift in emphasis among the points. Perhaps their repetition is the
best hope of a minority that its views may be of influence on the
majority in power, as well as others.
1. The reduction of Government expenditures so that there
may be no necessity for an increase in taxation, and that there
may be a reduction in the tremendous burden of taxation if the
international situation improves. While subscribing completely
to the idea that we should balance the budget and have something
left to supply to reducing the national debt in 1950, the possibili­
ties of doing this by expense reduction rather than entirely by
tax increases should be more strongly commended.
2. That the Government continue its control of general banking
and credit policies through the Federal Reserve Board in such a
manner as to check tendencies which have developed toward in­
flation or deflation.
3. We recommend that the public works program be varied
also in relationship to the general economic situation, expanded
if there appears to be too great a deflation, and restrained if other
construction appears to be normal.
4. We see no need at the moment for further selective controls,
but if any such need arises it should be dealt with by Congress in
specific and limited fields with the greatest protection of liberty.
5. The Government should be constantly on the alert to pre­
vent monopoly and the collusive fixing of prices. We are pre­
pared to support additional antimonopoly measures if a careful
study shows them to be necessary.
6. We still consider that a support-price program for farm prices
is highly desirable to prevent the development of a depression
through a complete collapse in agricultural prices. The adminis­
tration of this program should be directed not as a relief measure
or a guranteed income equality for individuals, but as a major
weapon against distortion between urban and rural incomes which
could bring collapse to the entire Nation.
7. We renew our recommendation that the Government take
an active interest in the development of housing, particularly in
the stability of the housing industry and the reduction in cost.
8. We believe that within a short time American industry will
face the problem of increasing imports at steadily decreasing
prices which may interfere with full employment in the United
States. The whole problem of exports and imports and their
effect on a stable economy during the next 2 or 3 years is a serious




34

JOINT 'ECONOMIC REPORT

one, and our Committee should proceed immediately to consider­
ation of that subject.
To recommendation 5 we would now add: “ We feel that a clarifica­
tion of existing antimonopoly law is badly needed.”
Members approving minority views:




R obert A . T aft.
R a l p h E. F l a n d e r s .
A r th u r V . W a t k in s .
J e s s e P. W o l c o t t .
R o b e r t F . R ic h .
C h r is t ia n A . H e r t e r .

IH. SUPPLEMENTARY STAFF MATERIALS*

The materials assembled herein by the staff are for the most part
supplementary to the information and data contained in the Economic
Report of the President and the Annual Review of the Council of
Economic Advisers transmitted to the Congress last January. They
represent, in the main, tabulations or analyses that were not available
then. Some were presented in the hearings held on the Economic
Report by this committee in January. Others consist of data of more
recent date. These materials are therefore not grouped according to
the 12 recommendations of the President but represent fragments of
additional evidence on certain parts of the economic picture as then
presented.
The facts then relevant and available were given concerning the
three major segments of the economy; namely, consumers, business,
and government. For each segment there are respective expendi­
tures and receipts. That outline is followed in presenting the sup­
plementary materials here assembled.
Aggregate demand for all goods and services consists of the sum
total bought by consumers plus those purchased net (or invested in)
by business plus those procured by government. Aggregate pur­
chases are not only equal to aggregate sales but in the long run also
to total output, since that which is sold has to be produced. Aggre­
gate demand is equal to aggregate supply or—allowing for changes in
mventories, stocks, exports, and imports—aggregate production.
The fluctuations in aggregate expenditures can therefore accurately
describe variations in gross national product. ‘ This is what is given
by the Council of Economic Advisers in chart 1, reproduced below.
Several of the witnesses at the hearings on the Economic Report ex­
pressed such live interest in the underlying numerical data and the
technical methods that the Council has since made them available to
this committee. Its memorandum entitled “ Productivity Estimates
and Deflation of Gross National Product” is printed in full in appendix
A, item I.
Certain facts clearly emerge from this analysis—most important
of all, that it is through economic growth alone that all sections of
the population can prosper and progress together, not by engaging in
bitter and hopeless conflicts to obtain for themselves larger shares of
a static national output. Secondly, that since 1890 the gross na­
tional product has increased nearly eightfold, product per worker has
more than quadrupled, while the average number of hours worked
lave declined a third. In the third place, that the central task in
achieving the purposes of the Employment Act of 1946 is to continue
the growth in national output and in worker productivity shown in
chart 1; that is, to foster maximum employment and investment
opportunity on the one hand and avoid inflation on the other. This
will require conscious purpose and hard work so that per capita
productivity may continue to increase at a rate of 2 to 2% percent a
year.
♦Useful as these materials have been in aid of our deliberations, we do not commit ourselves, either indi­
vidually or as a committee, to all of the points made or the data and analyses presented.




35

JOINT ECONOMIC REPORT

36

C hakt 1

NATIONAL OUTPUT AND LABOR INPUT
Our long-run production achievements have been more
the result of increased productivity than of increased
employment. Output per man-hour has more than quadrupled
in the last 60 years.




JOINT ECONOMIC REPORT

37

In the fourth place, as the President emphasized, such economic
progress since 1890 has depended, and will continue to depend,
primarily on business price policies and on business investment.
The enterprise and imagination of private businessmen will be a crucial factor in
achieving the upward growth of which our economy is capable.1 * * * Busi­
nessmen should base their investment policies on confidence in growth, shape their
price policies to the needs of larger markets, and proceed with vigor and ingenuity
to develop new and better products of all kinds. * * * 2

There are, needless to say, other factors. While business enterprise
and the voluntary energies released by a free market in a free economy
are primary, economic progress as a whole is dependent upon—
* * * the combined influence of (1) natural and human resources, (2)
scientific discoveries and inventions, (3) engineering applications, (4) business
organization and management, (5) the economic system, and (6) the governmental
system. Scientific discoveries would not yield practical results if we did not have
invention; patented technological devices would be impotent without engineering
applications to productive processes; engineering can function in a private enter­
prise system only in conjunction with a business organization able to appraise the
commercial feasibility of new developments; individual business enterprise in
turn will be thwarted if the economic system is defective; and finally the function­
ing of the economic system is dependent upon the character and the administra­
tion of the governmental system. Thus scientists, inventors, engineers, business
managers, and professional students of economics and government cooperate in a
common objective— that of increasing the capacity of the people to satisfy their
wants.*

I. T he

C on su m er Segm en t

The consumer segment of the economy can be measured either in
terms of consumer expenditures or in terms of consumer incomes and
funds utilized to pay for that which was bought. It will be remem­
bered that aggregate expenditures in the economy represent the total
spent by three groups: consumers, business, and government. By far
the largest are consumption expenditures. The relative proportions
of each can be clearly seen in chart 2. Note that the curve of personal
consumption expenditures in 1949 falls off much less than does gross
national product. The gradual rise in Government purchases of goods
and services since early 1947 is also apparent. Most striking is the
fall in private domestic and foreign investment.
The notable period of prosperity which the American economy has
enjoyed since 1940 warrants neither congratulations nor complacency.
It did not happen because of the discovery of a new formula either by
business or by government. There was World War II. Since 1945
there have been fortuitous nonrecurring factors: war-accumulated
backlogs here and abroad of demand for capital equipment, for private
construction, for automobiles, appliances, household goods, and other
items. There was an abnormal export of foods and machinery to
war-devastated and famine-stricken areas. The levels of armament
expenditures, of outlays for veterans, and of foreign lending and foreign
aid have been extraordinary. All these will taper off and may
disappear.
Our future prosperity seems to depend very definitely upon our capacity to
create additional buying power in the hands of the masses of consumers. This
requires, of course, an intensification of technological progress, for increasing manhour output constitutes the only foundation for higher standards of living. * * *
1The Economic Report of the President, January 19.50, p. 10.
* The same, p. 7.
* Moulton, Harold G., Controlling Factors in Economic Development, Brookings Institution.




3 R 0 S S NATIONAL PRODUCT

JOINT
ECONOMIC
REPORT




Ch abt 2

JOINT ECONOMIC REPORT

39

This increasing productivity must be accompanied by a constantly broadening
distribution of national purchasing power through the medium of an ever-improv­
ing ratio of prices to wages. Unless the buying power of the masses, whose wants
create markets, is progressively expanding, business management will have to be
content with a virtually static situation. * * * 4

Since the President’s Economic Report was published, the fact has
become clear that consumers in general not only did not suffer in
1949 but may have enjoyed a red flow of goods and services larger
than in 1948. As the Department of Commerce points out in the
February 1950 issue of the Survey of Current Business (pp. 2, 3):
A feature of the year’s developments was the extraordinary stability of the
consumer sector. A slight down trend in personal income was associated with
the farm component; monthly data for nonagricultural income showed an extreme
variation between the high and low month of only 2 percent, and 11 of the 12
months were within a 1-percent range. Consumer expenditures, available only
quarterly, showed virtually no variation at all, while monthly data for total retail
sales confirmed the quarterly stability. Accompanying the steadiness of con­
sumer income and outlays, the monthly index of consumer prices showed only
minor changes during the year [and were off only 2 percent from December 1948
to December of 1949].
*
* * personal income, retail sales, and consumer prices all averaged a
little less in 1949 than in 1948. Disposable personal income was maintained,
despite the small reduction in personal income, because of lower personal taxes.
Personal consumption expenditures and personal savings were also the same as
in 1948. The reduction in consumer prices was such as to indicate an increase
of about 1.6 percent in the real flow of goods and services moving to consumers.

As will be shown in detail later, this increase in consumption,
despite decreased production, was made possible by a shift in total
inventories from a net addition of $9,000,000,000 at annual rates in
the fourth quarter of 1948 to a net reduction of $3,000,000,000 in the
second quarter of 1949. Thus the flow of goods and services to final
purchasers—that is, domestic consumers, capital investors, govern­
ment, and foreign nations—increased from $256,000,000,000 to
$260,000,000,000. The primary factor offsetting the decline in busi­
ness investment was the fact that Federal, State, and local govern­
ments together, after showing a combined surplus of 8% billion dollars
in 1948, incurred a deficit of 3 billion dollars in 1949.
While the year 1949 was on the average a year of higher consumption
than 1948, there may have been individual groups of consumers that
did not share fully in the general increase. Although no data are yet
available for 1949, those for 1948, published by the Subcommittee on
Low-Income Families, indicate that a surprisingly large number of
families fall short of full participation in American prosperity, even
in years of full employment.
These families, possibly as high as 10,000,000 in number, consist
largely of those headed by aged persons, by unskilled and semiskilled
city workers, by farmers in disadvantaged regions of the country, by
migratory agricultural workers, by disabled persons; likewise broken
families. The entire group may contain as much as one-fifth of the
Nation’s children. Bringing these families within our national circle
of high employment, production, and consumption is a major task
which requires the concerted action and full cooperation of local com­
munities, State and local governments, labor unions, and private
business and professional organizations.
* Moulton, Harold G., in an address, How Strong Is Our Economy? before’National Association of Manu­
facturers, New York, December 8,1949.




40

JOINT ECONOMIC REPORT

Improving the production, earning power, and consumption of
the low-income group will provide expanding markets and greatly
strengthen the national economy. For example, improving the food
consumption of the lowest fifth of our families to the level of the
prewar average of the population in general—a modest goal—would
expand the domestic demand for food by about 3% billion dollars.
Since 1946 per capita food consumption has been cut back from 119
percent to 110 percent of the prewar level. Yet there are complaints
about farm surpluses. Raising the productivity and incomes of lowincome farm families in turn creates better markets for the products
of industry.
CONSUMER INCOME

The transition from a consideration of consumer expenditures to a
discussion of consumer income can readily be made by noting carefully
some of the facts brought out in table I below:
T a b l e I. — Selected series relating to consumption
Series
Personal consumption expenditures as percent
. of gross national product____________________
Net personal saving as percent of disposable
personal income___________________________
Disposable personal income as percent of gross
national product___________________________
Per capita disposable personal income:
Current dollars__________________________
1948 dollars1
.....................................................
Index (1948 dollars, 1948=100)..........................

1923-29
average

1933-35
average

76*0

80.1

74.4

73.9

68.1

4.9

.2

5.5

3.8

6.3

7.5

79.9

80.2

78.8

76.9

72.7

74.6

641
888
68.2

408
732
56.2

552
920
70.7

536
923
70.9

1.302
1.302
100.0

1,293
1,309
100.5

1937

1939

1948

1949

69.0

» Current dollars divided by the consumers’ price index on the base 1948=100 to give a rough measure
of changes in purchasing power of income.
Sources: Department of Commerce and Department of Labor.

Personal consumption expenditures represented 69 percent of gross
national product in 1949 as opposed to 68.1 percent in 1948 and per­
centages ranging from 75 to 80 percent in the two decades prior to the
war. Disposable personal income likewise increased from 72.7 percent
of gross national product in 1948 to 74.6 percent in 1949, but was
likewise lower than prewar. Per capita disposable personal income
in 1948 dollars was not only more than 50 percent higher than in the
twenties but showed a one-half of 1 percent increase in 1949 over 1948.
A careful study of chart 3 shows clearly the relationships since 1940
between personal income, disposable income after taxes, consumption
expenditures, and net personal savings. Note that net personal
savings were higher both in absolute and in percentage terms in 1949
than in 1948. They were higher in fact than in any peacetime year
for which data are available, though, of course, not as high as during
World War II.
.But all income groups may not have been equally fortunate. Con­
siderable evidence exists that the status of those having the lowest in­
come has continued to deteriorate. Unfortunately, the bulk of the
most recent figures available cover not 1949 but only 1948 and prior
years.




PERSONAL INCOME, CONSUMPTION, AND SAVING

JOINT
ECONOMIC
REPORT




Chart 3

42

JOINT ECONOMIC REPORT

A study by the Board of Governors of the Federal Reserve System
indicates that the lowest fifth of the Nation’s spending units, while
actually breaking even in 1945 and suffering negative savings amount­
ing to 8 percent of net savings of the Nation in 1946, were dissaving to
the extent of 13 percent in 1947 and 24 percent in 1948. See table II
for details. Even the second fifth of the income groups failed to break
even in 1948.
T able II.— Net personal saving and net income of each fifth of the Nation’s spending
u n its 1
Percentage of net saving1
1941

1945

1946

1947

Percentage
of net in­
come, 1948
1948

Lowest fifth...........................................................................
Second fifth_____________ ____________________________
Third fifth..............................................................................
Fourth fifth............................................................................
Highest fifth..........................................................................

-7
0
8
11
88

0
6
9
21
64

-8
3
5
21
79

-13
1
7
12
93

-24
-3
7
21
99

4
11
16
22
47

All spending units........................................................

100

100

100

100

100

100

Spending units ranked by size of income

1For a definition of the spending unit and a distribution of positive and negative saving, see
appendix B of the 1950 Economic Report of the President.
Sources: Department of Labor (1941) and Board of Governors of the Federal Reserve System
(1945-48).

On the other hand, note that the top fifth of the Nation’s spending
units, incomewise, saved an amount equal to 64 percent of all net
saving in 1945, 79 percent in 1946, 93 percent in 1947, and 99 percent
in 1948. In short, if the lower four-fifths of the income units are
lumped together, they on balance did only 1 percent of the net saving.
They received 53 percent, or slightly over half, of the total income.
Corroborating the indication above that the status of low-income
groups is steadily deteriorating are some figures on holdings of savings
bonds which include data for 1949. About 80 percent of the spending
units with incomes under $1,000 had no United States savings bonds
at all.
Table III gives the figures in detail. It is of interest to note that
the figure of 56 percent for 1949, representing the average for all income
groups, was 53 percent in 1948,44 percent in 1947, and only 37 percent
m 1946. In other words, a net of about 11,000,000 spending units
disposed of all the Government bonds they owned in the three pros­
perous years from 1946 to 1949.
T a b l e III. — Distribution of spending units by 1948 money income level who held no
United States savings bonds in early 1949
Distribution
of spending
units
(in millions)

Number and percent with
no United States sav­
ings bonds in early 1949
Number

Percent

Money income, 1948:
Under $1,000 _____________________________________
$l,000-$2,999........................................................................

6.0
20.7

4.8
13.0

80
63

Under $3,000_________ '___________________________
$3,000-$4,999........................................................................
$5,000 and over ____. . . _____________________________

26.7
16.1
7.6

17.8
7.9
2.6

67
49
34

All income groups________________________________

50.4

28.3,

56

Source: Derived from table 1, pt. Ill, and table 11, pt. IV, 1949, Survey of Consumer Finances,
Board of Governors, Federal Reserve System.







CHART 5

RATES OF PROFIT FOR MANUFACTURING CORPORATIONS
BY SIZE GROUPS

43

JOINT ECONOMIC REPORT

In that same period the fraction holding less than $500 worth has
one down from 37 percent to 25 percent, and the number of those
olding $500 worth or over but less than $2,000 face amount, has
dwindled from 20 percent to 13 percent.
On the other hand, the number holding $2,000 worth or more was
6 percent in 1946. It was 6 percent in 1949. Those in the top fifth
have outdistanced the field. Since most of them own their homes,
they are not affected by increases in rents. They can buy Government
bonds at the same prices they paid in 1946 and purchase most stockmarket securities at lower prices. Net costs of insurance have in­
creased, largely due to smaller refunds. So far as cost-of-living items
are concerned—food, clothing, and so on—the percentage of their
incomes so absorbed is relatively small—usually less than a fifth and
in the higher brackets less than a tenth.
Their average income in 1948 was nearly $1,500 higher than in
1941, even when deflated in terms of consumption goods (on which
they spend a relatively smaller part of their income), while the incomes
of those in the lowest fifth (who spend practically all their income on
food and necessities) were increased by barely a fifth of that amount.
Table IV gives the facts in detail. One should not confuse the
arithmetic mean and the median. The median, of course, represents
the 50-50 dividing line. Thus in 1948 one-half of all the families and
single persons got $2,840 or less; one-half got more. The arithmetic
average of all their incomes, however, was $4,231. Perhaps less than
one out of three enjoyed an income as high as that.

f

T

able

IV .— M oney income received by each fifth of families and single persons,
1 9 35 -8 6, 19^1, and 1948

Families and single persons ranked from
lowest to highest income

Percentage of money
income
1935-36

1941

1948

Average money income
in dollars of 1948 pur­ Amount of
chasing power1
increase in
dollars, 1948
over 1941
1935-36 1941
1948

Lowest fifth..............................................
Second fifth..............................................
Third fifth................................................
Fourth fifth..............................................
Highest fifth.............................................

4.0
8.7
13.6
20.5
63.2

3.5
9.1
15.3
22.5
49.6

4.2
10.5
16.1
22.3
46.9

$534
1,159
1,810
2,734
7,083

$592
1,546
2,597
3,816
8,418

$893
2,232
3,410
4,711
9,911

$301
686
813
895
1,493

All groups.......................................

100.0

100.0

100.0

2,664

3,396

4,231

835

i Current dollars divided by the consumers’ price index on the base 1948=100 to give a rough
measure of changes in purchasing power of income. Perhaps not valid for the highest fifth.
Sources: National Besources Planning Board (1935-36), Department of Labor (1941), and Council of
Economic Advisers (1948).

i
Since the end of 1946 consumer credit has increased nearly 80 per­
cent or from a level of 10.2 billion dollars then to 18.8 billion dollars
at the end of 1949. Even if one deducts an estimated $3,000,000,000
of single-payment loans, the amount is still almost 3 times the 5.5billion figure for 1929 while disposable income of 191.2 billion dollars




44

JOINT ECONOMIC REPORT

in 1949 is less than 2% times the 82.5 billion total for 1929. The ratio
of consumer credit to disposable income is 8.3 percent in 1949 compared
to 6.6 percent in 1929. During the last 6 months of 1949 with dis­
posable income drifting gently downward, consumer credit expanded
at the rate of 3 percent a month.
The fact has already been stressed that consumer expenditures not
only held up well in 1949 but actually increased as a percent of dis­
posable income. That fact helped considerably to moderate the de­
cline brought about in 1949 largely as a result of shifts in inventory
policy from accumulation to liquidation. A 1950 survey of consumer
finances published in the Federal Reserve Bulletin for April 1950 indi­
cates that consumer plans to purchase houses, automobiles, and other
items in 1950 quantitatively equal the amounts purchased in 1949.
More than twice as many television sets may be bought. The pro­
portion of consumers expecting price declines dropped from about onehalf of those interviewed in 1949 to one-third who so stated early in
1950. A larger percentage expected price increases. About 2.8
billion dollars is being disbursed in insurance dividends to veterans.
Assuming that consumer credit holds up or increases and that dis­
saving in the lower four-fifths of the income scale remains as large as
in 1949, consumer expenditures in 1950, in view of recent firmness in
farm prices, may continue to be strong.
II.

T

he

B

u s in e s s

Segment

The most strategic segment of the economy is that measured by
business expenditures or uses of funds. The other way to measure the
same thing is, of course, business receipts or sources of funds. In the
same way that purchases made by consumers are identical in amount
with net sales to consumers, so the funds used by business are equal
to the aggregate amount obtained by business from various sources.
Statistically, the total invested is equal to the total saved.
The business expenditure or investment segment of the economy has
in the past been most volatile and most responsive to variations in
economic and political psychology. Thus late in 1929 gross private
domestic investment began falling from a level of 15.8 billion dollars
until it dwindled to only 886 million dollars in 1932. Beginning in
1933 business investment rose steadily to a level of 11.4 billion dollars
in 1937, fell to 6.3 billion dollars in 1938, rose to 18.3 billion dollars in
1941, and reached the phenomenal peak of 45.0 billion dollars in 1948.
The variations since 1939 are clearly shown on chart 2.
This enormous variation can be explained in part by changes in the
value of the dollar, and in part it is an accompaniment of fluctuations
in national income. But that is true only in part. Even when the
major categories of private domestic investment and the construction




45

JOINT ECONOMIC REPORT

component of public investment are expressed as percentages of total
gross national product, the variability in the private investment seg­
ment is extraordinary, as is shown in table V below.
T a b l e V. — Gross private domestic investment and new public construction as per­
centages of gross national product, selected periods 1
1929

1932

1939

1948

1 Gross private domestic investment, total_______________________

15.2

1.5

10.8

17.2

(a) New private construction activity_______________________
(b) Producers’ durable eauipment, domestic sales_____________
(c) Change in business inventories after inventory revaluation
adjustment_____________ __________________________

7.5
6.2

2.9
3.1

5.4
5.0

6.8
7.9

1.5

-4 .4

.4

2.5

2 New public construction activity___ _________ ____ •
________ ____

2.3

3.1

2.8

1.6

* Factors Affecting Volume and Stability of Private Investment, Joint Committee on the Economic
Report, p. 2.

Note that inventories constitute by far the most variable item,
fluctuating from a positive to a negative item. While gross private
domestic investment fell 94 percent between 1929 and 1932, the sum
total of construction and producers’ durables fell about 75 percent.
The countercyclical activity in public construction appears clearly
when the 1932 figure is compared with 1929 and again when it is
compared with 1948.
Should business investment in the fifties continue to vary to the
same relative extent as in the past, the annual rate of total plant
and equipment outlays (including farm) might well fluctuate within
the limits, say, of $8,000,000,000 to $32,000,000,000. Such would
unavoidably be attended by great instability in levels of national
income and employment.
Data are not available to show the uses and sources of funds in
detail for all of the business segment of the economy. The capital
expenditures of millions of small enterprisers and of farmers can only
be guessed at through consideration of such facts as the output of farm
machinery, of industrial equipment, building materials, and the like.
But fairly reliable information is fortunately available concerning a
numerically small group of enterprises; namely, corporations reporting
both operating statements and balance-sheet information to their
stockholders or to the Bureau of Internal Revenue. These, in general,
account for about two-thirds of all domestic private investment. For
these it is possible to obtain information in highly illuminating detail.
Such information has recently been summarized by the Department
of Commerce for the year 1949 and is reproduced in table VI below.
Let us digress briefly to consider the data therein contained.

66696— 50-------4




46

JOINT ECONOMIC REPORT
T a b l e V I .— Sources and uses of corporate1funds, 1946 -4 9
[Billions of dollars]
Item

Uses:
Plant and equipment__________________ _______ __________
Inventories (book value)...... ......... ...................................................
Receivables________ _________________________ __ __________
From business............. ......... ........................................ .........
From consumers.............................. ................ ...................
From Government__________________________________
Cash and deposits *___________________________________
U. S. Government securities *_______________________________
Other current assets____________________ ___________________
Total.. lir______________________ ___ ____
Sources:
Retained profits *__________________________ _______________
Depreciation_______________________________________________
Payables (trade)____________________________________________
Federal income-tax liability__ ____________________ ___________
Other current liabilities_____________________________________
Bank loans (excluding mortgage loans)...............................................
Short-term_________________________________________
Long-term_____________________________________________
Mortgage loans_____________________________________________
Net new issues____________________________________________
Stocks_______________________________________________
Bonds________________ ________________________________
Total________________________________________________
Discrepancy_____________________________________ ____________

1946

1947

1948

11.6
11.2
4.8
5.1
1.7
- 2.0
1.1
—
5.8
.7
* 22.2

15.0
8.9
5.7
4.2
1.7
—.2
1.3
—1.5
—
.1
29.3

17.3
6.3
2.3
.8
1.4
.2
—
.1
.1
(3
)
25.9

1ft 1
IO i
«
-3.9
-.4
/*)
(*)
(*)
.9
1.8

7.7
4.2
4.0
—
1.6
1.8
3.3
1.9
1.4
.6
2.3
1.3
1.0
<22.3
—.1

11.4
4.9
2.6
2.7
.6
2.6
1.5
1.2
.8
4.4
1.3
3.1
30.0
—
.7

12.5
5.5
.9
.9
(8
)
1.2
.5
.6
.7
6.0
1.2
4.8
27.7
- 1.8

8.2
6.2
- 2.2
-2.3
(3
)
- 1.6

1949*

—

9

143

8 .6

5.4
1.6
3.8
14.3
0

* Excluding banks and insurance companies.
* All data for 1949 are partly estimated.
* Less than $50,000,000.
* Previously published tables, cash and United States securities were classified as sources of funds,
since Unusually large wartime accumulations made possible a substantial reduction of these liquid assets
to finance expansion in the early postwar period. In view of the substantial increase in these assets in
1949—reverting to a more normal status as a use of funds—these items were changed to the “ uses” side.
The shift in classification affects particularly total sources and uses in 1946, which were reduced by
4.7 billion dollars. Totals for the years 1947 and 1948 were changed but slightly, since there was little or
no net change 1 these assets.
t>
* Retained profits include depletion. Actual fourth quarter data on corporate profits are not yet available.
In deriving retained earnings and Federal income-tax liability estimates for 1949, estimates of corporate
profits for the year were obtained arbitrarily through averaging the results derived by holding constant,
first, third-quarter corporate profits before tax; and, second, third-quarter corporate profits and in*
ventory valuation adjustment. It is believed that annual totals calculated on this basis will be suffi­
ciently accurate for general purposes.
♦Not available.
Source: U. S. Department of Commerce, Office of Business Economics.

The striking fact to be noted first is that total uses of corporate
funds in 1949 declined over 40 percent and were $12,000,000,000 less
than in 1948. Even if one attaches no derivative or multiplier effects
to such a reduction in capital outlays, this would have been sufficient
by itself, in the absence of countervailing factors, to throw 2,600,000
men out of work.
Most of this reduction occurred in inventories. There was only
a moderate decline in plant and equipment outlays from 17.3 billion
dollars in 1948 to 16.1 billion dollars in 1949. In contrast, the book
value of corporate inventories fell by 3.9 billion dollars in 1949 revers­
ing the sharp upswing which was maintained throughout the earlier
postwar period. The reversal of inventory trends alone, centering
primarily in manufacturing corporations, accounted for a net reduc­
tion of about $10,000,000,000 from 1948 to 1949 in the total demand
for new capital. Whereas the expansion of inventories in 1948
required about 6.3 billion dollars of new financing, the 1949 contrac­
tion—a negative use or a source of funds—actually freed about
3.9 billion dollars for other uses.




JOINT ECONOMIC REPORT

47

Requirements for financing customers also were less. Throughout
the first three full years of the postwar period, expanding sales of
corporations were accompanied by increased credit granted to cussumers and other customers. During 1948, the credit expansion, while
below that of the previous year, amounted to the sizable total of
2.3 billion dollars. In 1949, corporations reduced their customer
credit outstanding by $400,000,000.®
There are many other interesting facts shown in table VI, but for
the sake of brevity it is necessary to return to a consideration of private
capital investment by all of business. Most important among such
investment expenditures is that on plant and equipment.
The question of major importance here is, are present levels of plant
and equipment at sustainable levels, or are they still above normal?
On that issue Prof. Sumner H. Slichter in an article entitled “ Will
Business Recovery Continue” in the Commercial and Financial
Chronicle for October 27, 1949, states:
The essential facts about expenditures on plant, equipment and housing may
be summed up as follows:
(1) The present level of outlay for these purposes seems to be abnormally high.
M y judgment is that they are about 12 to 19 percent above normal.
(2) A moderate drop in these expenditures within the next year would not be
surprising, but is far from certain.
(3) A drop in expenditures on plant, equipment, and housing will be offset to
a substantial extent by a drop in the rate of saving, particularly corporate saving.

Dr. Slichter's third point is borne out by data to be presented
shortly, showing the substantial increase in corporate dividends paid
out in 1949, despite a decrease in gross corporate earnings.
His second point—a moderate decline in planned capital expendi­
tures for 1950—is uniformly indicated by the results of several indeendent surveys, representative of which is that conducted by the
IcGraw-Hill Publishing Co. While in recent weeks the percent of
decline may be less than was forecast, say 6 or 8 percent as against
13 percent, the major trends of the McGraw-Hill survey still are
valid. They indicate that:

K

Industry—as represented by manufacturing, mining, transportation, and
utilities— now plans to invest 12.4 billion dollars in new plants and equipment in
1950. This is 13 percent less than was actually spent last year.
Manufacturing industries alone plan to spend 6.3 billion dollars in 1950 for new
facilities. This is also 13 percent less than they spent last year.
Manufacturers as a whole expect their 1950 sales volume to about equal 1949,s.
Manufacturers will expand their capacity about 3 percent in 1950, under
present plans. The largest part of their funds, 65 percent, will go to replace and
modernize existing facilities.*

Concerning Dr. Slichter’s first point there exists a considerable
amount of controversy. By calculations too elaborate to summarize
here, he concludes:
* On this point the article in the Survey of Current Business states:
"A more meaningful picture of the financial requirements associated with the changes in corporate receiv­
able is obtained if viewed in connection with corporate payables, since a large part of the movement of these
items reflects intercorporate business financing. (For example, if one corporation sells its product on credit
to another corporation, corporate receivables and payables both rise by an equal amount and no new outside
financing is required at that time.) Referring to the table, it may be noted that the drop of 1.6 billion dollars
in corporate receivables from business firms was equal to the reduction of corporate (trade) payables. Thus,
net receivables (total receivables less payables) rose by about 0.9 billion dollars, largely reflecting the further
extension of credit to consumers. This increase was, however, somewhat lower than that which occurred
In 1948.” (Ibid., p. 27.)
•Business Plans for New Plants and Equipment 1950, McGraw-Hill Department of Economics' Surveys,




48

JOINT ECONOMIC REPORT

* * * the need for investment-seeking funds will represent a smaller part
of the net national product than in the past. This result will be produced by the
slower 7 rate of population increase.
In the past, over half of the private investment has been necessitated by the
rate of population increases. If capital per worker and output per man-hour
increase about as rapidly as in the past and if the labor force increases in the next
generation by about one-fifth, roughly 6 percent of the national product will be
needed to devote to increasing plant and equipment. Between 1879 and 1929
nearly 9 percent of the national product was used for these purposes.8

Data recently compiled and published by the Machinery and Allied
Products Institute leads them to the tentative conclusion that the
recent equipment expenditure level in 1948 was—from a third to a
half above normal with the present level 5 to 20 percent above it * * *
from here on out the market for equipment will depend largely on
currently accruing demand, with rapidly diminishing benefit from the
postwar backlog.” 9
THE

H O U S IN G

AND

C O N S T R U C T IO N B O O M

Housing and construction, both private and public, also represent,
like plant and equipment, an area of investment in which large back­
logs were created by the war. Late in 1949 and continuing markedly
thus far in 1950, construction has proved to be a major element of
strength, especially nonresidential public construction, highway
building, public utility expansion, and private housing. The facts,
shown in detail in table VII, indicate that the economy is now in the
midst of the largest housing boom in history. Residential construc­
tion during the first 4 months of 1950 is up 50 percent over the first
4 months of 1949, public construction 20 percent. On the other hand
nonresidential construction is still below last year’s level by 8 percent;
industrial construction is down 30 percent.
7 Slower than in the nineteenth century despite the increase in recent years.
•Commercial and Financial Chronicle, Jan. 5, 1950. Dr. Slichter’s estimates, all being based on prices
and values at the beginning of 1949, can be presented in tabular form:
Value

Obsolescence Investment
rate
needed

Billions of
Industrial equipment__- ______________________ ____
Industrial real estate improvements...............................
Dwelling units (40,000,000 at $7,500)................................
Increase in dwellings to house new families....................
Increased equipment per worker___________________
Replace existing equipment per worker..........................
Total.......................................................................

dollars

123.7 9 percent—
160.6 2.9 percent..
200.0 200.000 a
year.
600.000 a
year.
2 or 3 percen t a
year.
$5,350 each.

Billions o f
dollars

11.2
4.7
1.5
4.5

5.9-8.8
3.2
31.0-33.9

Actual expenditures in 1948 in plant, equipment and housing were 38.5 billion dollars, which is from 4.6
to 7.5 billion dollars higher, i. e., 12 to 19 percent above the computed normal percentage levels, and may
represent the backlog of capital investment that was made up.
• Capital Goods Review, February 15, 1950. The entire pamphlet is reprinted in Appendix A, Item II,
“ Capital Equipment Boom and Backlog.”




49

JOINT ECONOMIC REPORT
T a b le

VII.— New

construction activity, 1948— and first
49

4

months o f 1 9 5 0 1

[Millions of dollars]
First 4 months
Item

1948

1949
1950

Total new construction.....................................
Total private...................................................
Residential. ______________________________-_
Nonresidential________________________________
Industrial. _______________________________
Warehouses, offices, and loft buildings_________
Stores, restaurants, garages__________________
Other nonresidential buildings *__ ____________
Farm construction____ ________________________
Public utility.............................................................
Total public.....................................................
Residential *......... ........... ................... ............. ......
Nonresidential________________________________
Military and naval *__________________________
Sewer and water....................... .................. ..............
Highway_____________________________________
Other public................................. ............. ..............

18,775
14,563
7,223
3,578
1,397
323
901
957
500
3,262
4,212
85
1,057
137
481
1,585
867

19,329
14,059
7,025
3,178
974
294
707
1,203
450
3,406
5,270
215
1,665
120
570
1,670
1,030

6,128
4,616
2,610
985
278
95
205
407
72
949
1,512
93
593
38
186
310
292

1949
5,102
3,847
1,740
1,069
399
104
211
355
70
968
1,255
40
474
31
168
288
254

Percent
change 4
months
1G UIa A
K
1V O M 4
O )
months
1949
+20
+20
+50
-8
-30
-9
-3
+16
+3
-2
+20
+133
+25
+23
+11
+8
+11

* Excludes oil-well drilling activity and certain other adjustments to gross national product level.
* Includes hotels and miscellaneous.
* Not seasonally adjusted.
Source: U. S. Department of Commerce, Office of Domestic Commerce; and U. S. Department of Labor g

Private housing starts (this excludes all public housing) in 1949 were
984,000, exceeding the previous record level of 937,000 in 1925.
Beginning in April, this rise, made possible by the large backlogs of
war, seems to have been generated (1) by an estimated 10-15 percent
reduction in the unit costs of new houses (in part due to increased
labor productivity); (2) by liberal use made of section 608 of title VI
of the National Housing Act and a stepping up of the operations of the
Federal National Mortgage Association (Fannie Mae); and (3) by
lower private money rates and an increased desire for psychological
safe haven from the modern hazards of metropolitan and industrial
centers. In recent months building costs according to the trade press
have been increasing.
T H E P R O B L E M O P I N T E R N A T IO N A L IN V E S T M E N T

As the President has frequently pointed out, no contribution to
world stability will exceed in value the certain establishment here of
an expanding economy of opportunity for all. If we do this, there is
no iron curtain anywhere that will prevent the knowledge of our
success from reaching the minds and hearts of people everywhere. If
we do not, the economies of our allied free nations will be whiplashed.
Our purchases from them generally go down slightly more in value
percentagewise than does business at home. There is a leverage and
inventory factor at work, particularly in raw materials. For short
periods, special circumstances may result in unusually sharp declines.
In 1937 and 1938, for example, when our national income fell 10 per­
cent, the dollar value of American commodity imports fell 35 percent.
Between the fourth quarter of 1948 and the second quarter of 1949,
national income declined less than 5 percent but the value of American
imports fell 15 percent. Several European currencies, including the
pound sterling, were given added impetus over the brink of devaluation.
Few economic problems require more intensive study than those of
international trade and foreign investment. What impact will the



50

JO INT ECONOMIC REPORT

failure—or the success for that matter—of our foreign-aid programs
have upon the domestic economy? Is the goal of an open, multi­
lateral trading system attainable or even desirable from the standpoint
of national security? What is the impact of enlarged flows of imports
upon special industries and regional employment in the United States?
How much self-sufficiency is necessary to make programs of high-level
employment opportunity work? Do international cartels make tariff
and other protections necessary? Can we afford to let our foreign
lending cease? The downturn in exports which has taken place since
1947 has a l r e a d y caused 600,000 jobs to be lost in American export
industries.9 If in 1952 our exports to Europe decline by enough to
*
eliminate the dollar gap, what are we going to do for our farmers who
might thereby lose 42 percent of their export market, or for electrical
and other equipment manufacturers who might suffer even a deeper
cut?

These questions are neither exclusively international nor exclusively
domestic; they are both. Answers are by no means easy to find.
Hearings will amply bring out legitimate special points of view. But
economic policy that is wise in the interests of all concerned is not
likely to be developed in that manner, not even through the process"pf
brokerage of pressures. At least three factual and objective studies
are needed.
1. Foreign investment.—To what extent and for how long can new
foreign investment postpone the eventual balancing of the foreign
trade gap either by increasing imports or curbing exports? What are
the effects of Government guaranties upon new private foreign lend­
ing? Are there means of enhancing the supply of dollars in inter­
national markets which have less serious implications for maintenance
of high-level employment opportunity, for example, by stockpiling,
tourist travel, exchange of students, and shipping and merchant
marine adjustments?
2. Commodity surveys— These ought to include important export
and import commodities. What have been the effects of foreign-aid'
programs, to date, on exports? What, for example, will be the likely
effects on export industries of the termination of ERP and other
foreign-aid programs? To what extent will the termination of such
programs force our exporters to face stiffer competition in world
markets if termination of aid means that foreign producers will find
it necessary to cultivate new nondollar markets?
On the import side, what would be the likely effects on domestic
industries of a substantial increase in imports? Might the rigidity of
administered prices and monopolistic controls be mitigated thereby?
Contrarily, what would be the effects of a substantial decrease?

Such studies, of course, require the cooperation of informed com­
modity experts, not only here, but abroad. The best judgment of the
broadest gaged international businessmen should be elicited.
3. Study of procedures whereby high-level employment policy is formu­
lated in other democratic countries — What methods are used by these

countries in formulating high-level employment policy—both domestic
and international? Are mechanisms comparable to those provided in
the Employment Act of 1946 in use? How are they operated? What
have been the results?
•* For an authoritative estimate transmitted to this committee by Dr. Ewan Clague, Commissioner of
Labor Statistics, see appendix A, item III.




JOINT ECONOMIC REPORT

51

Late in 1949 an international group of experts on full employment
appointed by the Secretary General of the United Nations rendered a
report entitled “ National and International Measures for Full Employ­
ment,” which laid primary emphasis on the responsibility of national
legislative bodies such as the Joint Committee on the Economic Report
to familiarize themselves with the “ full employment” consequences of
various enacted and proposed plans of international political action
while there is still time. Otherwise, state trading, exchange controls,
commodity deals, and other measures of economic autocracy under­
taken in response to national political pressures may create on the
international scene a series of self-contained garrison states in which
dreams and plans for individual freedom, free enterprise, high-level
employment, and increasing levels of income will be futile.
B U S IN E S S IN C O M E

Having briefly indicated some of the supplementary materials and
considerations pertinent to the problem of business investment or
uses of funds, let us now look at the reverse side of the coin and see
how the business segment of the economy looks so far as business
income and sources of funds are concerned.
The facts so far as the corporate sector is concerned have already
been tabulated in table VI above. Most important as a source of
funds is, of course, the item of profits, not, to be sure, profits before
taxes (which declined 21 percent in 1949 as compared with 1948), but
profits after taxes. The fact need not be labored that money available
for investment and dividends depends on profits after taxes, not those
before taxes. The difference is important because the drop in cor­
porate profits after taxes in 1949 was slight.
The corporate-profits component of national income— “ corporate profits and
inventory valuation adjustment” — was an estimated 31.4 billion dollars in 1949,
as compared with 32.6 billion dollars in the preceding year. The decline in thismeasure of corporate earnings was very much less than that shown by “ corporate
profits before tax.” The sizable drop in the latter measure, from 34.8 billion
dollars to 28.8 billion dollars, reflected very largely the predominant corporate
practice of charging inventories to cost of sales in terms of prior-period prices,,
rather than current replacement prices.
In 1948, when prices were rising the replacement cost of inventories used in pro­
duction exceeded the reported “ book” cost; and the opposite was true in 1949,
when the course of prices was downward. The “ inventory valuation adjustment”
— the difference between the book cost and the current replacement cost of inven­
tories used in production— is added to reported profits before tax in order to elimi­
nate inventory profits and losses and thus secure a measure of earnings from current
production appropriate for inclusion in the national income.
The sharp difference between the two profit series helps to explain one striking;
aspect of corporate financial policy in 1949— the steady flow of dividend disburse­
ments in the face of the apparent substantial {decline in total profits. N ot only
were corporate profits, including the valuation adjustment, well maintained in
1949 on a before-tax basis, but they actually increased on an after-tax basis. Tax
liabilities declined by more than $2,000,000,000 because of the substantial drop
in book profits, on which they are based.
Accordingly, after account is taken of reduced dollar requirements for inventory
replacement and for income taxes, corporate profits available for distribution and
reinvestment actually were higher in 1949 than in the previous year. In addition
to these, other factors— such as diminished investment needs in many industries
and the unusually low proportion of dividend distribution throughout the war and
in the postwar periods, when capital outlays by business for expansion created
extraordinary demands for investment funds— undoubtedly contributed to the
maintenance of dividend disbursements in 1949.1
0
1 * U. S. Department of Commerce, Survey of Current Business. Changes in Corporate Profits Share
•
Slight, February 1960, p. 9.




52

JOINT ECONOMIC REPORT
C O R P O R A T IO N S N E V E R M O R E L IQ U ID

Despite increased dividend disbursements, corporations increased
their net working capital by 2.9 billion dollars. See table VIII.
They increased their holdings of cash and United States Government
securities by 2.6 billion dollars and decreased their current liabilities
by 5.5 billion dollars. As a result their liquidity ratio of cash and
United States Government securities to current liabilities increased to
72 percent in 1949 as compared with 61 percent at the end of 1948
and only 45 percent in the years preceding the war.
An examination of table VI indicates that in 1949, in addition to
investing 16.1 billion dollars in plant and equipment, corporations
increased their holdings of cash and deposits by $900,000,000, and of
United States Government securities by 1.8 billion dollars. In the
same year, corporations reduced their debt to banks by 1.6 billion
dollars, their Federal income tax liability by 2.3 billion dollars, and
their payables (trade) by 2.2 billion dollars. Of the total of 24.9
billion dollars used by corporations in 1949, only 4.4 billion dollars
were realized from outside debt sources. This was made up of
$600,000,000 of mortgage debt and an increase of 3.8 billion dollars in
corporate bonds. But insofar as the burden of such debt is repre­
sented by interest payments, the fact is worth noting that corporate
interest payments in 1949 were equal to but 8 percent of corporate
profits (before taxes and interest payments), as compared with 29
percent in 1940 and 30 percent in 1929.
The Subcommittee on Investment of the Joint Economic Committee
heard and published considerable evidence on the problem of equity
financing. The new data for 1949 available in table VI indicate that
T a b le

V III. — Current assets and liabilities of United States corporations 1 194&-49
[Billions of dollars]
1942

1943

1944

1945 *

1946

1947

1948

1949

CURRENT ASSETS

Cash on hand and in banks..............
U. S. Government securities.............
Notes and accounts receivable*........
Inventories........................................
Other current assets4.......................Total current assets.................

17.6
10.1
27.3
27.3
1.3
83.6

21.6
16.4
26.9
27.6
1.3
93.8

21.6
20.9
26.5
26.8
1.4
97.2

21.7
21.1
25.9
26.3
2.4
97.4

22.8
15.3
30.7
37.6
1.7
108.1

24.1
13.8
36.4
43.9
1.6
119.9

24.0
13.9
38.7
48.5
1.6
126.7

24.9
15.7
38.3
43.8
1.4
124.1

26.0
12.6
8.7
47.3

26.3
16.6
8.7
51.6
42.1

26.8
15.5
9.4
51.7
45.6

25.7
10.4
9.7
45.8
51.6

31.6
8.5
11.8
51.9
56.2

35.6
10.6
13.1
59.3
60.6

37.1
11.6
13.1

33.7

61.9
64.8

56.4
67.7

CURRENT LIABILITIES

Notes and accounts payable8............
..........
Federal income tax liabilities •
Other current liabilities7..................
Total current liabilities............
Net working capital.................

36.3

9.7

13.0

1 All United States corporations excluding banks and insurance companies. Data for 1942-46 are based
on Statistics of Income, covering virtually all corporations in the United States. Data for 1947-49 are esti­
mates based on data compiled from many different sources, including data on corporations registered with
the Commission. Because of the nature of the figures, these estimates are subject to revision.
* Tax refunds to corporations have been treated as shown on corporation books. Beginning with Sep­
tember 1945 they appear, for the most part, as decreases in Federal income-tax liabilities and, to a lesser
extent, as increases in other current assets. Small amounts may also appear as increases in U. S. Govern­
ment securities and receivables from U. S. Government.
* Includes receivables from U. S. Government.
4 Includes marketable securities other than U. S. Government.
* Includes advances and prepayments from U. S. Government.
* The postwar credits in excess-profits taxes were not deducted from Federal income-tax liabilities but
were considered as noncurrent assets until they became due under the provisions of the Tax Adjustment
Act of 1945.
7Includes provisions for renegotiation other than those combined with income-tax liabilities.
N o t e .—Figures are rounded and will not necessarily add to totals.
Source:—Securities and Exchange Commission, Working Capital of United States corporations, Dec.
31,1949. Release No. 927, Apr. 30,1950.




JOINT ECONOMIC REPORT

53

82.3 percent of the funds needed was then obtained from equity or
inside sources, such as, retained profits, depreciation, and new stock
issues. In 1948 the figure was 70.8 percent.
In the hearings on investment, moreover, a number of witnesses
testified that capital expansion was being financed by debt because of
the high ratio of earnings to stock prices. More recent figures,
however, shown below in chart 4, indicate that a rapid improvement
took place during 1949 and early 1950. The earnings to price ratio
is now lower than in any of the prosperous years of the 1920’s or the
early war years or the postwar period since 1947. The market for
bonds has been so good, however, that there still exists a reluctance to
float stocks at present prices, since by borrowing at low rates earnings
can be further pyramided on high-yield stock holdings of the present
owners.
Chart 4

CORPORATE BOND AND COMMON STOCK YIELDS,
AND EARNINGS /PRICE RATIOS

1Based upon data for cannon stocks listed on the New York Stock Exchange; total reported earn­
ings for the yaar expressed as a percentage of the total market value (nuaber of shares t i«es aver­
age prices) of these stocks.
2Data are averages of daily figures.
38ased upon data for comon stocks listed on the New York Stock Exchange; total dividends for
the year expressed as a percentage of the total «arket value (nimber of shares tiaes average prices)
of these stocks.
Sources of data: Bond yield, Moody’s Investors Service; earnings/price ratio and dividend yield
through 1938, Cooaon Stock Indexes, Cowles Coswission Monograph No. 3, and for following years
extrapolated on the basis of Movements shown by Moody's earnings, stock prices, and dividend series.




54

JOINT ECONOMIC REPORT
P R O F IT S N O T

E Q U A L L Y GOOD F O R SM A L L B U S IN E S S

There is evidence that small business has not fully shared in the
profit bonanza since 1947. Reliable data prior to that year are not
available. Fortunately, the Federal Trade Commission in collabora­
tion with the Securities and Exchange Commission now publishes
statistics affording reasonably accurate comparison of profits for
large and small corporations in what is called the Quarterly Industrial
Financial Report series. The facts thus far brought to light are shown
on chart 5.
All manufacturing corporations are classified into five groups accord­
ing to the size of their total assets. The largest group consists of about
146 corporations, each of which at the end of 1948 had assets of more
than $100,000,000. The next largest group includes corporations with
assets of more than $5,000,000 but less than $100,000,000. The third
group contains corporations with assets of more than $1,000,000 but
less than $5,000,000. In the fourth group are corporations of more
than % million dollars and less than $1,000,000. And in the fifth
group are corporations with assets of less than Y million dollars.
a
In the first quarter of 1947 the highest rate of profit was that for
corporations in the middle group or with assets ranging from $1,000,000
to $5,000,000. The group with assets between % of a million dollars
and $1,000,000 came second; that with assets from $5,000,000 to
$100,000,000, third; the smallest group with assets below Y million
a
dollars, fourth; and the largest with assets of more than $100,000,000
stood at the lowest point. With all five groups, profits on stockhold­
ers’ equity, after taxes, were running higher than 12 percent annually.
The highest rate of profit was something over 20 percent. These rates
reflect the seller’s market under which small enterprises are just as likely
to do well as large enterprises. There was no systematic relationship
between the size of the corporation and its ability to make profits.
During the next 3 years the picture changed completely. The
trend of profits for the smallest corporations, those with assets under
$250,000, not only went steadily downward but, as is clearly show
by the heavy broken line on chart 5, went down the most. Whether
one considers the seasonal peaks reached in the third quarter of each
year or the seasonal lows reached in the fourth quarter or computes a
trend line the result is the same: a drastic drop in the rate of profits*
From an average of over 14 percent in 1947 the rate declined by more
than two-thirds to less than 5 percent in 1949.
A similar, though less drastic, fall is indicated by the dotted line
showing the rate of profits for corporations with assets from $250,000—
$1,000,000. The rate here goes down from 17 percent in 1947 to
about 8 percent in 1949.
The rate of profit for the group with assets between $1,000,000
and $5,000,000, shown by the heavy black line on chart 5, went down
by about half from about 19 percent in 1947 to roughly 9 percent in
1949.




JOINT ECONOMIC REPORT

55

The two largest groups both enjoyed somewhat lower rates of profit
in 1947 and have suffered much less since then. The rate of profit
of corporations with assets ranging between $5,000,000 and $100,000,000 declined less than a third, that is, from a level of 17 percent
to one of 11 percent. The largest group showed a rate of profit of
13.5 percent in 1949 as compared with 13.3 percent in 1947.
Thus at the end of the second quarter of 1949 the five size classes of
corporations had sorted themselves out so that the level of their profits
was a direct reflection of their relative size. .The biggest corporations
had the largest rate of profit, the smallest corporations had the
smallest rate of profit. The three middle groups fell in between in
the order of size. In the second half of 1949 the profit rates of the
two groups with the highest volume of assets showed roughly the
same diversity in pattern of behavior as in the last half of previous
years, that is, they rose while the profit rates of the three smallest
groups fell.
In the postwar boom, when most goods were scarce, there was an
unlimited market for everyone’s goods. For the time being, the small
businesses of this country did well. Their profit rates rose to levels as
high or higher than those of the business giants. When this exceptional
period of scarcity came to an end, big business was scarcely affected.
The earnings rates of the little concerns started downhill.
Recent data, not available at the time the Subcommittee on Invest­
ment made its studies, show that in 1949 for the first time since the
war, the total number of firms in operation actually declined by
nearly 70,000, of which about 31,000 were in manufacturing, and
24,000 in the retail trade. While business failures are still some 20
percent below 1941 levels, they increased 75 percent in 1949 over
1948. Yet wholesale prices fell only 7 percent and retail prices but
2 percent. Full details are shown on chart 6.
The total business population in 1949 is thus estimated at 3,907,700
firms of which 1,676,700 are retail stores, 844,900 are service enter­
prises, 345,400 operate finance, insurance, and real estate offices,
321,800 do contract construction, 297,100 are engaged in manufac­
turing, 201,900 are wholesalers, 187,000 are public utility enterprises,
and 33,100 operate mines and quarries.
In 1946 new firms added 10 to 15 percent to total plant and equip­
ment expenditures. Such net additional investment by new firms
represented a practical demonstration of the reality of the privilege
of free, private entry into business. But in 1949, except insofar as
those who discontinued operations moved their equipment elsewhere,
or sold it to thriving competitors, more used, second-hand plant and
equipment was added to available stocks.




SIGNIFICANT BUSINESS INDICATORS

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REPORT




Chabt 6

JOINT ECONOMIC REPORT

57

W ID E N IN G F IS S U R E S I N T H E P R IC E S T R U C T U R E

In discussing the business segment of the economy—and in particu­
lar business investment—there remains the task of presenting whatever
supplementary materials there may exist on the problem of business
price policies. Not only the President’s Economic Report but eco­
nomic literature in general has considered business investment and
price policies as indissolubly linked together.
Thus Senator Paul H. Douglas o f this committee, and in 1947
president of the American Economic Association, in his book entitled
Controlling Depressions (in a chapter headed “ Where the Trouble
Seems to Lie” ) identifies the fundamental generating causes of
business slumps as:
(1)
The failure of industry, because of “ friction,” monopoly, and quasi
monopoly, to reduce prices commensurately with the reduction in costs so that
undue profits were piled up and undue profits made. (2) The failure of industry
and society to increase wages, salaries, and farm incomes commensurately with
the increase of output in the mass production industries (p. 77).
The pegging of prices by management was largely responsible for both the
initiation and the continuation of the depression (p. 64).
The cause for these price rigidities and the consequent inflation of profits was
not merely the “ frictions” of the competitive market which impede automatic
adjustments. It was to a much greater degree due to the growing power of
monopolies, industrial combinations, and trade associations, which through
various devices such as outright price-fixing and open price agreements were able
to peg prices at a much higher level than that to wnich they would otherwise
have sunk.
Three very serious consequences of this policy should be noted: (1) The profit
inflation which it created led to the reinvestment of most of these profits, and
hence to the piling up of a large capital plant. * * * (2) These high profits
not only stimulated investment based upon rational considerations but also a
speculative pouring in of capital into producers’ goods so that a top-heavy develop­
ment was built up in these lines. (3) In order to peg prices, it was necessary to
exercise some control over production and to restrict it somewhat. For, if this
had not been done, the greater quantities would have compelled a reduction in
prices. But this restriction of production was at the same time a restriction of
employment. With output per worker rising more rapidly than total production
expanded, the inevitable result was a slight diminution in the total numbers em­
ployed in manufacturing, mining, and transportation. And, what was even more
important, there was a failure on the part of the basic industries to absorb the
increased numbers of those who entered the labor market during the decade.
These workers had to spill over into other occupations (pp. 58-59).

This analysis of Senator Douglas in many respects fits the present
situation. Prices of manufactured products, adjusted for changes
in the price of raw materials, remained high in 1949 or went up.
Prices of farm products and other raw materials went down. Despite
a lower physical volume of output than in 1948 profits and prices in
many industries such as steel rose to new levels.
A study was made of the changes in 733 wholesale prices from their
peak of August 1948 to August 1949. Of these, 228 were grouped as
typically inflexible, following the classification of earlier studies such
as those of Dr. Gardiner C. Means of the Committee for Economic
Development. On the same basis, 279 were listed as neither flexible
nor inflexible, and 226 as typically flexible.
The results are striking. The 228 “ administered” prices rose in
1949 on the average 2.2 percent. They went up contrary to the trend.
On the other hand, the 226 market-dominated prices declined 9.5
percent. The 279 neither flexible nor inflexible, declined 5.9 percent.
Included among the typically inflexible prices were those of such




58

JOINT ECONOMIC REPORT

important commodities as steel, automobfles, tractors, and other farm
machinery, heavy chemicals and construction materials such as brick,
tile, and plumbing and heating equipment. Included among the
flexible price items were primarily farm products, foods, scrap iron,
and various domestic and imported raw materials.
The full details are shown in table IX. Of the typically inflexible
prices, 49.6 percent increased, while only 21.9 percent followed the
general trend down from the peak of August 1948. Of those that fell,
only 1 out of 3 fell by more than 5 percent, and fewer than one out of
20 by as much as 20 percent. On the other hand, only 23.4 percent
of the flexible prices went up. Nearly three-fourths or 72.6 percent
went down, of which only 1 out of 10 declined as little as 5 percent,,
while nearly a third fell over 20 percent.
T a b l e IX .— Distribution of wholesale price changes for 788 commodity price seriesr
August 1948 to August 1949
Percent
distri­
bution
ah wholesale prices__ __ ______________

Percent increasing_____ _____________
Percent stable___________________
Percent decreasing__ ____ ___________
Typically inflexible whole sale prices._____

Percent change
0-1.9

2-4.9

5-9.9

10-14.9 15-19.9 Over 2
0*

100.0
31.4
18.7
49.9

5.5

7.5

10.9

4.1

1.4

2.0

3.0

8.6

10.8

8.3

6.8

12.4

7.9

11.4

19.7

7.5

2.2

.9*

4.8

7.9

4.4

2.6

1.3

.9*

100.0

Percent increasing__________________
Percent stable ______ __ __ ________
Percent decreasing___________ ______

49.6
28.5
21.9

Typically neither flexible nor inflexible
wholesale prices ___ ___ ____ ____ ______

100.0

Percent increasing_______ •
__________
Percent stable
_
____ _____
Percent decreasing__________________

22.9
22.6
54.5

Typically flexible wholesale prices_______ _

100.0

Percent increasing__________________
Percent stable
______ ___________
Percent decreasing___________ ______

23.4
4.0
72.6

3.9

7.5

6.8

2.2

1.1

1 .4

3.2

11.1

12.2

8.6

6.8

12. &

4.8

3.5

7.1

3.1

.9

4.0*

.9

6.2

15.5

13.7

12.4

23.9'

Source: Computed from data of U. S. Department of Labor, Bureau of Labor Statistics.
Definition of flexible and inflexible is on basis of classification given by Dr. Gardiner C. Means in
Structure of the American Economy, National Resources Committee, 1938.

The problem was summarized by the Council of Economic Advisersin its report on The Economic Situation at Midyear 1949 as follows:
While increasingly active competition has already brought about part of the
needed adjustment, there are many fields where the power to “ administer”
prices is strong and where the practice of price leadership is well-entrenched. It
is in these fields that the capacity of businessmen to take the long view and to
adopt policies conducive to fundamental and healthy economic readjustment will
be put to the test. If, while other prices are falling, they cut production to what­
ever degree is necessary to maintain their prices, they will impair the effort to
maintain economic activity at the highest possible level (p. 7).

In the Economic Report the Council gave further recognition to
the problem, and dismissed it in the following terms:
There are some prices which are too high to permit continuance for a long
period of the current volume of sales. These prices will need to be reduced or
production and employment will eventually suffer. These prices are in the field.




JOINT ECONOMIC REPORT

59

of administered-price industries where price policy is firmly controlled; but it
may be expected that managers in these industries will not fail to reach for the
larger market demand which will follow price adjustments (p. 100).
STEEL

Disappointing in this respect were the price increases in steel on.
December 16, 1949. The Index of Steel prices had already increased
late in 1948 to a level above that of the index of wholesale prices in
general. Notwithstanding drastic reductions in raw material costs
(notably scrap iron and fuel oil) they declined insignificantly in the
first half of 1949. The gap between high steel prices and low farm
prices steadily widened (see chart 7). In spite of rises in other prices
greater than in steel mill products since January 1950, steel prices
remain high in relation to farm and other commodities.
On general economic grounds, the Council of Economic Advisers
testified in hearings before this committee that:
Steel is clearly one area where price reductions will be necessary. * *
The steel industry, in our opinion, would qualify as one of the industries where
producers preferred to reduce output and employment rather than reduce prices..
Of course, the magnitude of the reduction in steel prices which would have been
called for would not be of the drastic order of the fall in steel prices in 1921. '
The picture with respect to building materials other than steel is mixed. Some
building materials are much lower than they were a year earlier, notably paint,
and paint materials, and some grades of lumber. On the other hand, brick and
tile, and cement are higher than they were a year earlier. The building materials
where prices have been firm or have risen would qualify as areas where reductions
in prices will be necessary in the future to maintain output (pp. 45, 46).

Steel is one of the main materials used by the railroad, shipbuilding,
construction, farm machinery and industrial equipment industries*
and is not unimportant in home building and appliances. When
steel is high, the cost of replacement, modernization, and new con­
struction is high. When the prices of steel and other metals and
metal products are low as compared with the prices of manufactured
products, business expenditures for plant and equipment are generally
high.
The crude comparison made in table X indicates that such indeed^
may be the case. It merits careful study. Note that the price ratio
of metals and metal products to manufactured goods was high in.
periods of low investment. Thus it was 113.7 in 1921, 114.1 in 1932,
113.2 in 1933, 116.4 in 1938, 117.4 in 1939 and 1940, and 113.6 in
January 1950. On the other hand, during recent well-known pros­
perous years it was low. Thus the ratio was only 99.7 in 1920,
ranged from 100 to 102.6 in 1925 to 1928, and was 99.5 in 1946 and
99.3 in 1947, during the largest investment boom in American eco­
nomic history. After late 1948 the ratios became steadily higher
until January 1950. The slight decline since January still leaves theratio at 112.9 in April 1950. Business investment in plant and
equipment has become less attractive costwise.




WHOLESALE PRICES
BUREAU OF LABOR STATISTICS INDEXES. 1926*100

JOINT
ECONOMIC
REPORT




Chabt 7

61

JOINT ECONOMIC REPORT
T a b l e X .— Prices and private investment, 1 9 19 -5 0
Wholesale price index (1926=100)1
Period

(1)

(2)

Manufac­ Metals and
tured
metal
products
products

1919 ..........................................................
1920.............................................................
1921.............................................................
1922.............................................................
1923..................................... .......................
1924.............................................................
1925.............................................................
1926.............................................................
1927........................................ ...................
1928.............................................................
1929.............................................................
1930.............................................................
1931.............................................................
1932.............................................................
1933.............................................................
1934.............................................................
1935.............................................................
1936.............................................................
1937.............................................................
1938.................................. ..........................
1939..... ......................................................
1940.............................................................
1941.............................................................
1942.............................................................
1943.............................................................
1944.............................................................
1945.............................................................
1946.............................................................
1947.............................................................
1948.............................................................
1949.............................................................
1948:
March___________________________
June_____________________________
Sp.ptp.m
bp.r ... ......... .......... r, __
December________________________
1949:
March___________________________
June_____________________________
September____ _________________
December________________________
1950—January________________________
February. _ _ _ _ _ _ ___________
March_______ _________ ________
April _
_
_________

(3)
(2)-r(l)

Gross pri­ Business ex­
vate
penditures
for new
domestic
invest­
plant and
ment 2
equip­
ment *

Billion
dollars

12.1
16.0
7.3
9.6
15.1
11.4
15.4
16.2
14.3
13.5
15.8
10.2
5.4
.9
1.3
2.8
6.1
8.3
#11.4
6.3
9.9
13.9
18.3
10.9
5.7
7.7
10.7
29.5
31.1
45.0
36.8

Billion
dollars

6.5
7.3
4.8
5.1
7.1
6.9
7.5
8.5
8.1
8.4
9.8
7.6
4.6
2.5
2.3
3.1
3.8
5.2
6.6
4.7
5.7
7.4
9.3
5.8
4.6
6.3
8.7
16.0
20.6
24.7
23.2

130.6
149.8
103.3
96.5
99.2
96.3
100.6
100.0
95.0
95.9
94.5
88.0
87.0
70.3
70.5
78.2
82.2
82.0
87.2
82.2
80.4
81.6
89.1
98.6
100.1
100.8
101.8
116.1
146.0
159.4
151.2

130.9
149.4
117.5
102.9
109.3
106.3
103.2
100.0
96.3
97.0
100.5
92.1
84.5
80.2
79.8
86.9
86.4
87.0
95.7
95.7
94.4
95.8
99.4
103.8
103.8
103.8
104.7
115.5
145.0
163.6
170.0

100.2
99.7
113.7
106.6
110.2
110.4
102.6
100.0
101.4
101.1
106.3
104.7
97.1
114.1
113.2
111.1
105.1
106.1
109.7
116.4
117.4
117.4
111.6
105.3
103.7
103.0
102.8
99.5
99.3
102.6
112.4

155.8
159.6
164.0
157.6

155.9
158.6
172.0
173.8

100.0
99.4
104.9
110.3

40.7
44.2
47.1
48.0

23.7
24.6
25.1
25.1

154.1
150.7
150.1
147.9
148.2
149.0
148.8
149.4

174.4
167.5
168.2
167.4
168.4
168.6
168.4
168.7

113.2
111.1
112.1
113.2
113.6
113.2
113.2
112.9

40.0
33.2
32.1
33.7

24.5
23.8
23.4
21.2

41.1

<18.3

1 Source: Bureau of Labor Statistics.
2 Data for 1919-28 are tentative estimates. Source: Department of Commerce, Office of Business
Economics. Quarterly data for 1948-49 are for the quarters ending with the end of the month given,
1950 figure is for the first quarter of 1950; preliminary estimate by committee staff.
* Data taken from the private gross investment sector of the national product, excluding changes in
inventories, residential and nonprofit institutional construction, and farmers’ outlays for construction,
machinery, and motor vehicles. Quarterly data for 1948-49 are for the quarters ending with the end of
the month given. 1950 figure is for the first quarter of 1950; a preliminary estimate by committee staff.
* Tentative preliminary estimate.

Obviously there are many other reasons why businessmen stop
investing in new plant and equipment besides the fact that new plant
costs are relatively high. It is but one of the important variables
affecting private capital investment. To state with assurance how
large a factor it might have been one would have to know quantita­
tively the relative role of such stimuli to new investment as past and
prospective profits; a persistent flow of orders in excess of ability to
deliver; inventions, patents, and improvements in technique; increases
or shifts in the population; discovery of new sources of supply; need
or desire to get ahead of, or keep abreast of, competitors; changes in
governmental tax, tariff, fiscal, or regulatory policies; debt-equity
66696— 50------- 5




62

JOINT ECONOMIC REPORT

ratios or liquidity or ready availability of funds; interest rates and
costs of financing; cost levels of labor, building materials, and other
items used in addition to metals and metal products to build new
plant; prices and market prospects for the industry; stock-market
activity, the general business outlook, and other factors.
FARM PRICES

The behavior of farm prices when compared with farm machinery
prices likewise shows the reemergence of a familiar and disturbing
disparity. A glance at chart 8 raises the question whether the basic
pattern of agricultural distress from 1921 to 1941 is reappearing. The
evidence thus far is to be sure but a mere fragment.
During the period of readjustment of farm prices from the infla­
tionary levels of 1947 and 1948, farmers realized net income has, of
course, declined. It reached a peak of $17,800,000,000 in 1947, de­
clined to $16,700,000,000 in 1948, to $14,000,000,000 in 1949 and is
estimated (perhaps "too pessimistically) by the United States Depart­
ment of Agriculture at a level of about $12,000,000,000 in 1950.
The prices farmers pay have not declined as much as the prices
farmers receive. In December 1949 the index of prices farmers
received stood at 236 (compared with a record high of 307 in January
1948), but the index of prices paid stood at 240 (compared with a
record high of 249 in September 1948), giving a parity ratio of 98,
as against the highly favorable ratio of 133 in October 1946.
Such price comparisons do not represent conclusive evidence of
costs or net income. Increased efficiency may permit farmers to
pay higher wages for labor and nevertheless produce their crops at
lower per unit costs. Not only have the yields of most crops increased
in the last 40 years but the man-hours per unit have gone down in
many instances more than half.
Thus, in 1910-14, corn yields per acre averaged 26 bushels compared
jb 35.2 bushels in 1945-48, while man-hours per 100 bushels declined
o
from 135 in 1910-14 to 67 in 1945-48. For potatoes, yield per acre
climbed from 99.9 bushels in 1910-14 to 182.3 in 1945-48, while
man-hours per 100 bushels dropped from 76 to 44. The implications
of these facts for the potato price support program are obvious. For
cotton, yield per acre increased from 200.6 pounds per acre in 1910-14
to 268.6 in 1945-48, while man-hours required per bale declined from
277 to 182. In the production of wheat, yields per acre have risen
from 14.4 bushels in 1910-14 to 17.7 bushels in 1947-48, while manhours per 100 bushels have declined from 146 to 34.” 1
1
For agriculture as a whole, the available data show that agricultural
output per worker practically doubled between 1909 and 1948. If
1940 be taken as a base year and set equal to 100, the index of farm
output per worker was 64.2 in 1909, 76.8 in 1914, 78.5 in 1919, 86.9
in 1930, 112.9 in 1947 and 127.4 in 1948.
Despite such increases in productivity, farm incomes in i948 were
estimated at $905 per capita, all items considered, as compared with
$1,572 for nonfarm people.
n For a detailed discussion, see Sherman E. Johnson, Changes in American Farming, Miscellaneous Pub­
lication No. 707, United States Department of Agriculture, Washington, D. C., December 1949, especially
p. 68 et seq. The figures quoted above are taken from a table on p. 70.




63

JOINT ECONOMIC REPORT

There are various new aspects of the relationship of agriculture
to foreign investment, industrial tariff policies, and the like which are
unusually puzzling. Several seem to lie within the field of study of
the Joint Committee on the Economic Report.
(1) What is the multiplier effect of increases and decreases of
farm income on business activity in the economy as a whole?
What is the contribution of present farm price support programs
in maintaining high and stable levels of urban employment?
(2) What is the effect on international trade of current farm
price support programs?
The unassessed significance to date of the international aspect of
domestic farm price support programs appears to be peculiarly comC h art 8

P R IC E S R E C E IV E D FOR FARM P R O D U C T S A N D P R IC E S
PA ID BY F A R M E R S FOR C O M M O D IT IE S
U S E D IN P R O D U C T IO N , 1910-49
I N D E X N U M B E R S ( 1910-14 =1 0 0 )

R E V IS E D DATA A S O F JAN. 1, 1950

U S DEPARTMENT OF AGRICULTURE

NEC. 47923-X

BUREAU OP AGRICULTURAL ECONOMICS

1 For numerical data see appendix A, item III, Prices Paid and Received by Farmers,
1910-49.

plicated by United States price levels, a declining trend in exports
of some major United States farm products, a prospective decline in
foreign aid dollars, the restoration or even the expansion of foreign
production, and widespread rigidities in trade.
(3)
What is the effect of farm price support programs on farm
families in the different income groups in agriculture? How can
they be readjusted to give maximum aid to the millions of lowincome farm families?
As was indicated in recent studies of this committee, of nearly
10,000,000 United States families receiving less than $2,000 cash
incomes in 1948, about 3.3 million lived on farms. Of the latter,
about half or 1.7 million farm families had cash incomes in 1948 of




64

JOINT ECONOMIC REPORT

less than $1,000. In general, they had more children, poorer land,
less education, more sickness, and fewer job opportunities than any
other group in the population. But their potential productivity and
consumption are large. They constitute a huge potential market for
industrial products. What contribution can farm price support
programs make toward developing this economic frontier? Fifty
percent of the farms sell only 10 percent of the commercial products
moving from United States farms. Do price supports do these much
good? Or do present acreage reductions sometimes take the form of
reducing the number of tenants (the low-income farm families in some
areas often are tenants or sharecroppers) thereby removing families
entirely from farming, and causing severe hardships pending relocation
in productive employment?
(4)
How, if at all, would multiple pricing of farm products
work?
The two-price system in one form or another was debated at length,
legislatively, in the 1920’s. In some small sectors of the economy
it is now in use—there is at present a subsidy of about 50 cents for
each bushel of wheat exported from the United States under the
International Wheat Agreement. The provisions of section 416 of
the Agricultural Act of 1949 may be utilized in a similar manner to
sell portions of the crop in different markets at different prices.
To what extent are differential prices for farm products now in oper­
ation? What is the economic and administrative feasibility of
expanding such programs as an alternative for present Government
price-support and marketing-quota programs?
Unusuallv high crop yields in 1948 and 1949, continued rapid
adoption of improved technology, and declining world demands for
United States exports of food and fibers, resulted in larger supplies
of many farm products than can be moved to market at current farm
price-support levels, even in a period of high prosperity. If the solu­
tion to the agricultural delemma is high-level employment in industry,
why does an agricultural price problem exist in years such as 1949
and 1950? If one does exist, what is it?
DUAL PRICING IN BUSINESS

In many respects a dual pricing system already exists. In fact,
during the hearings on the Economic Report, the Joint Committee
was chided by one of the witnesses for failing to bring sharply to the—
attention of the Congress the dangers of our precarious dual pricing system*
The type of administered pricing to which I specifically refer is that developed
through resale price maintenance laws and the Miller-Tydings Act which gives
Federal legal sanction to such price-fixing contracts in interstate commerce.
We contend that consumers are entitled to intense competition, not only between
manufacturers of similar goods but between retailers of identical brands and that
the absence of such competition thwarts the purpose of the Employment Act
of 1946.
Let me illustrate with a specific case which has recently come to my attention.
An appliance dealer could sell an automatic washer at $149 and make a reasonable
profit. He wishes to close the deal at that figure. The fair trade price on the
article is $199.95. If he sells, he is violating the law in 45 States and is subject
to prosecution. If he does not sell, the washing machine remains on his floor.
He loses. The consumer loses. The production of the country is thereby
retarded.
This type of monopolistic restraint has in recent years grown like a plague,
fostered by an organized minority in drugs, photographic supplies, paints, hard­




JOINT ECONOMIC REPORT

65

ware, cosmetics, toilet goods, appliances, notions, glass, silverware, building
supplies, books, liquor, stationery, tobacco. It even extends into a few grocery
lines.
Our observation leads to the conclusion that the Joint Committee might
advisedly recommend the repeal of the Miller-Tydings Act by the enactment of
the O’Toole bill, H. R. 4003. We believe that Chief Justice Adams, of the Florida
Supreme Court, well summed up the effect of price maintenance laws in his
recent decision.1 He stated:
2
“ This statute is, in fact, a price-fixing statute. The power to fix the price is
vested in an interested person who is not an official. There is no review of his
act. He is required to consult with no one and in no sense is required to take
into consideration the cost of the article or the reasonableness thereof.
“ The act is arbitrary and unreasonable and violates the right to own and enjoy
property; one economic group may not have the sovereign power of the State
extended to it and use it to the detriment of other citizens. It is essentially
price fixing of the worst character, that is, the fixing of a minimum price floor
* * * without a yardstick * * * or any provision for public * * *
notice or hearing.” 1
3
THE FRAM EW ORK OF BUSINESS PRICE POLICIES

Our economy is sometimes called a price economy. This means more than that
changes in particular prices influence the decisions which determine the kinds and
volumes of goods which are produced. It also means that the price factor exer­
cises so important an influence upon levels of real profits and real wages and other
incomes that it vitally affects the economic balance between investment and
consumption which is essential for a high level of general activity.1 *
3

In the American economic system of ordered liberty, the Govern­
ment always has the responsibility of enforcing fair competition. The
free enterprise ideal is best exemplified in competitive sports. On the
professional football field numerous controls are imposed precisely to
guarantee that individual reward shall be merited by individual effort
and excellence.
By calling plays out of bounds or offside, by penalties for illegal
practices, by putting the ball in play and stopping it at the sound of
the referee’s whistle, by making sure all contestants have equal op­
portunity and an even break, are equally equipped and of relatively
the same age, sex, etc.; in short by enforcing an ever-evolving set of
rules, the maximum of individual voluntary energy, team play, skill,
stamina, daring, and ingenuity are evoked. Any competitor that
wanted to do as he pleased without referee or rule book would be
considered ridiculous. Professionals are not allowed to play with
grade school children, nor the big to run amuck among the small.
Competitors are classified, handicaps set, so that equality of oppor­
tunity and freedom of entry may be a reality for all. Thus all are
able to participate. There is maximum play and employment
opportunity.
But in business pricing activity, similar metes and bounds of fair
play are hard to determine. There are some who think that they
should price their product as they please though they clamor for
Government interference with the way organized labor sets its prices
and, indeed, sometimes lobby for Government barriers and tariffs
which interfere with the right of the consumer to choose what he shall
buy, from whom, at prices representing maximum efficiency.
i et clearly the Government has here the same duties that the um­
pire has on the athletic fields. Some prices may be pushed out of
1 Liquor Stores, Inc. v. Continental Distilling Corp., (1949).
2
1 Hearings before the Joint Committee on the Economic Report on the January 1960 Economic Report
8
of the President, 81st Cong , 2d sess., pp. 243-244.
i3 The Annual Economic Review of the Council of Economic Advisers, January 1950, p. 99.
a




66

JOINT ECONOMIC REPORT

bounds on the high side, some may be destructively low. In both
cases a referee is needed ready to apply the proper penalty or take
the appropriate action. Of course, the individual players and some­
times, the whole team may disagree with the decision. The referees
may on occasion be whistle-happy. Yet if continuous referral is ob­
tained from the consent of the governed, the consumers who foot the
bill ultimately determine how matters shall be settled.
COMPETITION AND BIGNESS

To be concerned about undue size and advantage is as necessary
in business, if competition is to be preserved, as it is on the athletic
field. If a parent, for example, should find the kitten with which
his child plays growing to be 20 feet tall with claws 2 feet long, one
can readily understand why, despite protestations from the kitten of
no change in disposition or intention, the parent should not only feel
deep concern but demand safeguards.
This is what has happened in the last 70* years in the relation of
the American public to industry. Modern technology has increas­
ingly developed large agglomerations of economic power which indi­
vidually govern the lives and control the incomes of hundreds of
thousands of laborers and tap the pocketbooks of millions of con­
sumers without their having any opportunity at all except through
political channels to limit such control to the exercise of “just powers
derived from the consent of the governed.” The largest agglomera­
tion of economic power is, of course, the Federal Government with
nearly 2,000,000 employees and $40,000,000,000 of annual revenue.
Next in size come several large corporations with more employees
than any State in the Union. There are some with larger revenues
and many with control over a larger volume of assets than the assessed
valuation of the property in any except a half dozen large States.1
4
The problem of concentration of economic power and administered
prices both in industry and in Government, is one of the most impor­
tant major problems of this century. On two previous occasions 1the
Joint Committee on the Economic Report has emphasized the gravity
of the problem in the following words to which the passage of time
has but added increased validity and significance:
A free economy in the American tradition is one in which the individual is not
regimented by either private or public power. The principal obstacle to the
maintenance of such an economy arises from the failure to understand that when
the Government does not adopt a positive program, but is content merely to
drift, the inevitable result is, first, regimentation of the people by the concentra­
tion of economic power in private hands; and, second, the seizure by dictatorial
government of the powers of regimentation thus built up in private hands.
The first step in the preservation of the traditional free, competitive American
economy is to prevent depression, and the second step is to prevent the concen­
tration of economic power in private hands. Neither of these objectives can be
attained except by positive Government action.
The greatest danger that the country now confronts is that any Government
action is mistaken to be, or misrepresented to be, a plan to establish arbitrary
Government power. That is not the case. Communism in the area behind the
iron curtain, socialism in Britain or in France, and fascism in Spain, Argentina,
or elsewhere, are all the result of the failure of government to take in time the
necessary steps to preserve a free, private-enterprise system against the destruc­
tive advance of private monopoly.
1 For a tabular comparison of all governmental and business units with assets in excess of $1,000,000,000
4
in 1947, see appendix A, item IV.




JOINT ECONOMIC REPORT

67

Unfortunately, many of those who desire to preserve what they conceive to be
the vested interests of economic concentration already achieved, seek to prevent
economic reform through the only agency by which it can be accomplished—
namely, the Government of the United States— by misrepresenting it to be an
attempt to set up socialism.
Yet monopolistic restrictions and the concentration of unbridled economic
power in private hands are not only major enemies of economic productivity,
but have destroyed and will continue to destroy, human freedom and democracy.
Central economic power as exercised by those who control the modern instru­
ments of commerce has been the cause of the development of arbitrary central
political power in the modern world. Mussolini, Hitler, and Stalin, all three,
have been the direct product of the concentration of economic power. The
modern monopolies become the collectivist pattern for a collectivist state. The
fight for freedom begins with the fight against monopoly.1 ®
4

The first and basic question here raised is one of fact. In what
areas does competition work effectively? Where is there adequate
evidence being collected on the extent to which “ effective competition
in large-scale industry is forthcoming?” How can monopoly or
restraints on competition be measured? What standards are there
for measuring whether competition is effective? If business fails to
keep competition effective, what remedies will prove efficacious? To
what extent do large concentrations of power limit productive capac­
ity, keep prices up, and prevent consumer income and expenditures
from being increased sufficiently both absolutely and relatively to
preserve high-level national income and employment? Will this
increase result automatically through the interplay of prices and costs
in the market place? Or will a depression appear when the gap
between potential output and effective demand of consumers and
business become unmanageable as has happened in the past? Or
can affirmative policies, as envisaged in the Employment Act close
or bridge this gap before it becomes a chasm?
As stated in the 1950 policy statement of the New York Young
[Republican Club:
Serious consideration should be given to the economic utility and social desira­
bility of the giant corporation in our competitive economy. For the curse of
bigness in business, as well as in government, is the regimentation of the individual
and the curtailment of his freedom.

III.

T he G overn m en t Segm en t

In recent years the percentage of the whole economy or of gross
national product which can be accounted for by Government activity,
as measured either by expenditures, or by revenues including net
changes in the debt, has been about a sixth, or roughly the same order
of magnitude as gross private domestic investment. In 1948, for
example, Government purchases of goods and services amounted to 36.7
billion dollars, private investment was 45 billion dollars, and gross
national product totaled 262.4 billion dollars. In 1949 the Govern­
ment figure was 43.4 billion dollars (an increase of 6.7 billion dollars
over 1948), the business segment 34.7 billion dollars, and the gross
national product 257.4 billion dollars. A reexamination of chart 2
indicates how these proportions have varied since 1940.
The supplementary materials relative to the Government segment
fall into the same two categories as those already presented on the
consumer segment and the business segment, namely expenditures and
receipts.
1 a Joint Economic Report, Report of the Joint Committee on the Economic Report, Senate Report No.
4
1358, 80th Cong., 2d sess., Washington: 1948, pp. 60-62; again in Joint Economic Report, Senate Report No.
88, 81st Cong., 1st sess., Washington: 1949, pp. 39-42.




68

JOINT ECONOMIC REPORT
GOVERNMENT EXPENDITURES

So far as Government expenditures are concerned, only those
budgeted for the Federal Government are thus far available for the
fiscal year 1950-51. Both on a cash basis and in terms of the adminis­
trative budget the Federal budget is likely to show a deficit. Table
XI below summarizes the facts concerning payments and receipts on a
cash basis. It indicates that Federal expenditures of cash will exceed
cash receipts by 4.9 billion dollars in fiscal 1949-50, and by 2.7 billion
dollars in fiscal 1950-51.
T a b l e X I— — Federal payments to the public by major functions
A.
[In billions of dollars]
Fisca1year en ding June 30—
<
Function
19511

19501

All functions............................................................. .............................
National defense......................................................................................
International affairs and finance______ ____ ____ _____ ____________
Veterans' services and benefits______ ________________ ___________
Interest on the debt................................ ................................................

45.8
13.8
4.9
7.1
4.1

46.5
13.2
6.2
9.2
4.3

40.6
12.1
6.6
7.0
3.9

36.5
12.2
5.8
6.8
3.9

Other programs, total..............................................................................

15.9

13.6

11.0

7.9

Social welfare, health, and security______ ___________________
Education and general research______ ________ _______________
Housing and community facilities........ ..................... ....... ..............
Agriculture and agricultural resources..............................................
Natural resources______ _________ ________________________ .
Transportation and communication.................................................
General Government_____ __________________________________
Other (including unemployment benefits)_____________________

5.1
.4
1.2
2.2
2.2
1.7
1.1
2.0

3.0
.1
.7
2.7
1.9
1.9
1.1
2.2

2.5
.1
(2
)
2.6
1.5
1.6
1.0
1.7

2.1
.1
.2
.6
1.1
1.3
1.3
1.3

1949

1948

1Estimated by the Bureau of the Budget.
* Less than $50,000,000.
N o t e .— Figures from the budget for 1951. Expenditures in fiscal year 1948 do not reflect the bookkeeping
transfer of $3,000,000,000 to the Foreign Economic Cooperation Trust Fund; expenditures from this fund are
included in expenditures in 1949. Figures do not necessarily add to totals due to rounding.
T a b l e X I-B . — Federal receipts from the public
[In billions of dollars]
FiscalI year ending June 30—
Source
19511
Total cash receipts_______________________________________
Direct taxes on individuals:
Withheld....... ...................................................................................
Other income taxes_________________________________________
Estate and gift taxes________________________________________
Direct taxes on corporations_____________________________________
Excise taxes and customs____ :__________________________________
Employment taxes_____________________________________ ______
Other receipts:
Deposits by States, unemployment insurance______ ___________
Miscellaneous budget and trust account receipts________________
Deduct: Refunds of taxes______________________________ ________

19501

43.1

41.7

41.6

45.4

10.1
8.2
.7
10.5
8.0
4.8

9.8
8.1
.7
11.2
8.0
3.0

9.8
8.1
.8
11.6
7.9
2.5

11.4
9.6
.9
10.2
7.8
2.4

1.2
1.8

1.0
2.0

1.0
2.8

1.0
4.4

2.2

2.2

2.8

2.3

1949

1948

1 Estimated.
N o t e .— Figures from the budget for 1951. Estimates for 1951 include amounts for proposed legislation
of 1.5 billion dollars. Figures do not necessarily add to totals due to rounding.




JOINT ECONOMIC REPORT

69

If one excludes from the cash budget those receipts and expendi­
tures for social programs which are largely self-supporting through
special taxes, then for fiscal 1950-51, about 71 percent of the resulting
administrative budget is requested for foreign aid, veterans’ assistance
programs, national defense, and interest on the national debt. The
sum of 29 cents out of each budget dollar is designed to meet the
requirements of our domestic economy.
About 6 cents out of each administrative budget dollar is slated
for social welfare, health, and security. The total request by the
President is approximately $2,700,000,000. This sum is asked for
public assistance to the aged, blind, dependent children, maternal
and child care, public health, school-health program, and all aspects
of the social-security law exclusive of unemployment compensation.
The balance of the administrative budget dollar—23 cents—is pro­
posed to finance the following programs: Price supports for American
agriculture, rural electrification and telephones, soil conservation, all
the activities of the Department of Agriculture, land and water
resources development, atomic energy, reforestation, highway systems,
aviation and airport development, navigation, business loans, research,
unemployment compensation, and the many administrative activities
and responsibilities of the Federal Government.
The /President stated that the budget is—
directed at achieving a budgetary balance in the only way which it can be
achieved— by measures which support rather than impair the continued growth
of our country.

For the first time, the Federal budget this year reveals that a large
percentage of the proposed expenditures are to be used to build up the
assets of the Nation. Substantial proportions of such expenditures
may be repaid to the Government either directly or indirectly in the
future. A special tabulation showed that as much as $12,400,000,000
out of a total of $42,400,000,000 is asked for loans, grants-in-aid,
construction, productive public works, and other developmental pur­
poses. Approximately $4,000,000,000 of this investment may be
repaid to the Government through repayment of loans, sale of com­
modities, or sale of power from hydroelectric projects. Much of the
rest is requested for such development purposes as State and local
construction of hospitals, schools, research, education, health, and
natural resources.
Moreover, stockpiles of strategic materials such as rubber, tin,
manganese, nickel, and chromium represent investment. So do in
part the stores of cotton, wheat, corn, and other nonperishable farm
products accumulated under the price-supports program. Similarly,
loans on housing, FNMA mortgages, commodity credit, and ExportImport Bank loans do not represent expenditures without prospect of
any recovery. A bank considers loans an asset, not a liability. Many
of these loans will be repaid with interest. In fact, some Federal loan
agencies such as the Home Owners Loan Corporation have been able
to close their books without any cash losses to the Government.
Since fiscal year 1939 the national income of the United States has
more than trebled. Federal budget expenditures, however, have risen
to about four and three-quarter times their 1939 level. Thus budget




70

JOINT ECONOMIC REPORT

expenditures increased from less than 13 percent of the national
income in 1939, to 18 percent of the estimated national income in 1951.
During the fiscal year 1939, Federal Government expenditures
amounted to about $68 for each man, woman, and child in the country.
In the fiscal year 1951, the per capita expenditure is estimated at more
than four times that amount, $278.
About 80 percent of the increase has occurred in four areas—
national defense, international affairs and finance, veterans’ services
and benefits, and interest on the public debt. These four govern­
mental purposes—national defense, international affairs and finance,
veterans’ services and benefits, and interest on the public debt—will
absorb in fiscal 1951 about 13 percent of the national income or about
the same proportion as was represented by all Federal expenditures
in 1939. On the other hand, the percentage of increase for all other
programs is much less than the rise that has taken place in per capita
national income and in the prices the Government has to pay for the
goods it buys. The expenditures for non-war-related programs in
1951 are estimated to represent 5.3 percent of the national income
compared with 9.1 percent spent for these programs in 1939.
HOW

F L E X IB L E

IS T H E

1 9 5 0 -5 1

BUDGET?

In hearings on the Economic Report, the Director of the Bureau of
the Budget pointed out that the Federal budget, far from being highly
flexible as are the plans and programs of a business or an individual,
is in reality a statement, for the most part, of past international and
national security commitments, commitments to pay obligations
incurred by reason of past wars, and commitments made in the do­
mestic field. Thus in 1948 when Czechoslovakia fell, the Federal
budget was raised by about $3,000,000,000.
Secondly, there are open-end programs as, for example, those pro­
viding for the education and training of veterans, the Commodity
Credit program and purchases by the Federal National Mortgage
Association (Fannie Mae). With respect to these the Budget
Director must make guesses. How many G l’s are going to take
advantage of education and training? In terms of crop-support
funds required, what will be the effects of weather, of pest controls,
and other factors on agricultural yield? How much will the RFC
need for its operations in the secondary mortgage market? Such
items are substantially dependent on the decisions of millions of
veterans, farmers, and savers, and, therefore, to a considerable degree
beyond the control of the executive branch and beyond terms of
really sound judgment in knowing exactly what the drain on the
Federal Treasury will be.
The Director of the Bureau of the Budget presented an estimate
and a chart in hearings before this committee indicating that a bare
meeting of commitments already made would cause governmental
expenditures in fiscal 1950-51 to total 27.8 billion dollars. In other
words, if a complete closedown were ordered of all governmental
activity and every single person on the Government payroll were
fired, the total cut in expenditures would be 14.6 billion dollars.
This includes not a cent of outlay for personnel to liquidate such
governmental commitments.




JOINT ECONOMIC REPORT

71

Chart 9

ANALYSIS OF
BUDGET EXPENDITURES




FISCAL YEAR 1951
JAN. 1950 ESTIMATE

72

JOINT ECONOMIC REPORT

The facts, presented by him in a chart reproduced herewith as
chart 9, were explained in the following colloquy:
The C h a ir m a n . Will you please recapitulate those figures on the chart?
Mr. P a c e . Obligated balances of prior-year appropriations, $7,100,000,000;
authorizations to spend nonappropriated funds $2,600,000,000; fixed charges
which involve interest on the public debt and VA pensions, $9,400,000,000;
appropriations to liquidate contract authorization, $3,800,000,000; veterans
readjustment benefits, $2,600,000,000; grants to States, $1,600,000,000; and
public works, $720,000,000. Total budget expenditures in terms of fixed charges
or other firm commitments $27,800,000,000; in terms of the flexible area,
$14,600,000,000.
M r. R ic h . D o y o u figure in th a t foreign aid?
Mr. P a c e . Only those expenditures for foreign aid which will be made from

appropriations already enacted. In the total of $7,100,000,000 from obligated
balances of prior-year appropriations, for example, there is about $2,000,000,000
in foreign-aid programs.

In short, the only place so far as the next fiscal year is concerned,
where 4, 6, or 8 billion dollars can be cut is out of the flexible 14.6
billions. Instead of general 10-, 15-, or 20-percent cuts, drastic
special reductions of 30, 45, or 60 percent are involved.

Considerable progress has been made in implementing the Hoover
Commission recommendations for reorganizing and streamlining the
Federal Government. Their status is indicated below:
Progress in implementing Hoover Commission recommendations

Administrative actions:1
Completed________________________________________ ________
Partially completed 2________________________________________ ______
Study under way_________________________________ ___________ ______
No action taken (6 must await reorganization action)________ ______

38
7

Total __________________________________________ ________

91

25
21

Reorganization plans:8
Completed ------------------ ----------------------------------------- ______
24
4
Pending congressional approval---------------------------- -- ----- ______
Partially completed 2__________________________ ______ ________ *12
51
Disapproved by Senate______________________________ ______
37
No action -------------------------------------------------------------- ______
Total---------------------------------------------------- -------------------------- ______

78

i As of Feb. 14,1960.
* In most cases these recommendations require the same steps in many different agencies; these steps
have been completed in some agencies but not in all. In other cases actions to carry out the recommenda­
tions are in progress but are not yet completed.
* As of June 6,1950.
4 plans 7,11,12 which would have vested responsibility in the Chairman of the IOO, FCC, and NLRB
were disapproved by the Senate.
* Plan No. 1 of 1949 creating a Department of Welfare, and Plan No. 1 of 1960, providing for reorganization
in the Treasury Department were disapproved by the Senate. Plans Nos. 26 and 27 now pending in Con­
gress cover the same recommendations in modified form to meet objections raised.

The changes that have taken place in governmental personnel are
shown in table XII. Since 1948 there have been decreases every­
where except in the Post Office Department. More than three out of
four civilian employees of the Federal Government are employed in
the Post Office Department, the National Military Establishment,
and the Veterans’ Administration.




73

JOINT ECONOMIC REPORT
N A T IO N A L D E F E N S E C O STS

The most sizeable of all governmental expenditures are those
made for national defense. In the fiscal year 1950-51 over 44 percent
of budgeted expenditures is scheduled to go for national-security
activities. The facts are shown in table XIII which has been espe­
cially prepared for the committee by the Bureau of the Budget.
The economic impact of such gigantic expenditures is difficult to
assess. Such outlays, according to one point of view, tend to bolster
the economy. Dr. Sumner Slichter has put the matter as follows:
*
* * the United States is not at peace and there is no immediate prospect
that the United States will be at peace. The country is engaged in a cold war
which will probably continue for some years. No one likes the cold war because
everyone knows that it might break out into a shooting war. Furthermore, most
Americans wish to be on friendly terms with other peoples and are happier when
their relations with other countries are cordial. Nevertheless, from the narrow
economic standpoint, the cold war is a good thing. It increases the demand for
goods, helps sustain a high level of employment, accelerates technological progress
and tnus helps the country raise its standard of living. In the absence of the cold
war, the demand for goods by the Government would be many billions of dollars
less than it now is and the expenditures of both industry and Government on
technological research would be hundreds of millons less than they now are. So
we may thank the Russians for helping make capitalism in the United States work
better than ever.1
5
T a b l e X II.— Average Federal employment in executive branch, fiscal years 1989 ,
1948 , and first half of 1950 , with comparisons 1 broken to show civilian employ—
ment in Post Office Department, National Military Establishment, Veterans9
Administration , and other agencies
Average employ­
ment by fiscal
years
Agency

Increases or decreases in average employment
1939-48

1939 *

1948*

1950 8
Number

1948-50

1939-50
Per­
cent

Number

Per­
cent

Num­
ber

Per­
cent :

+78 +56,763

+12

+633,130 +352 -81,555
+159,537 +440 -5,375
+129,329 +35 -7,649

-4
-3
-1

Total....................... 882,792 2,025,148 2,037,332 +1,142,356 +129 +1,154,540 +13l|+12,184

+1

Post Office Department- 297,191
National Military Estab­
lishment........................ 179,898
Veterans’ Administration- 36.278
Other agencies.................. 369,425

+59

472,972

529,735

+175,781

844,583
201,190
506,403

813,028
195,815
498,754

+664,685 +369
+164,912 +455
+136,978 +37

+232,544

11939 was the year of peak Federal employment prior to the prewar emergency; 1948 was the year Federal
employment reached a postwar low.
2 Prior to inauguration of committee reports; therefore, figures are from adjusted Civil Service Commis­
sion reports.
* Figures are from former committee reports revised and corrected to date.
Administration. Total cost of all Federal personnel is 6.7 billion dollars, and total cost in agencies outside
the big three is 1.9 billion dollars.
1 Sumner H. Slichter, Will Business Recovery Continue? in The Commercial and Financial Chronicle,
5
October 27,1949.




74

JOINT ECONOMIC REPORT

T a b l e X III.— Budget authorizations and expenditures for selected national security
activities
[Fiscal years, in millions]
New obligational authority i|
Activity
1949
actual

1950
1951
actual
recom­
and an­ mended
ticipated

Expenditures
1949
actual

1950
esti­
mate

National defense:
Department of Defense..................... .......... 2$14,046 3 $13,193 3 $13,085 $11,548 $12,560
Activities supporting defense stockpiling___
835
425
299
500
580
National Advisory Committee for Aero­
nautics.............................
65
76
63
49
56
All other..............................
41
25
18
30
-48
Total, national defense........................
International affairs and finance (mostly foreign
aid and foreign relief)........ ............................
Atomic Energy Commission________________
U. S. Maritime Commission merchant ship­
building program.............................................
Total...................................................

1951
esti­
mate

$12,852
650
65
-22

2 14,987

3 13.724

3 13,673

11,914

13,148

13,545

8,681
662

6,982
889

5,035
600

6,462
621

5,964
673

4,711
817

75

13

51

75

10.383 iQ nm
....... 1 ...........

19,836

19,148

104

65

24,434

21,660

1 New obligational authority includes actual and recommended net new appropriations and other authori­
zations (e. g. contract and loan authorizations), and excludes appropriations to liquidate prior-year contract
authorizations.
* Includes 2.9 billion dollars (largely for aircraft) for 1949 program provided in fiscal year 1948.
8 Amount shown for 1950 excludes 873 million dollars of authority made for 1950 which will be available for
obligation in 1951; the amount shown for 1951 includes this 873 million dollars.
Source: The Budget of the United States Government for the fiscal year 1951, as transmitted to the Con­
gress on January 3, 1950. Since that date, supplemental estimates of appropriations and contract authori­
zations have been transmitted which reduce the new obligational authority shown in 1950 for the Atomic
Energy Commission by 41.1 million dollars and the amount recommended for 1951 by 6.3 million dollars,
and increase the authority recommended for International affairs and finance in 1951 by 2.9 million dollars.

The political and institutional dangers, on the other hand, have
been strongly emphasized by the Committee for Economic Develop­
ment.
When we increase our military defense we necessarily increase the role of the
military in our Government. When we increase the share of our resources de­
voted to armament, we unavoidably enlarge the scope of Government in industry,
in politics, in science and education and in every sphere of life.
Security measures, uncurbed by the requirements of freedom, can undermine
our free institutions. Public apathy and pressure for security can lead us down
the road that ends in the garrison-police state.1
®
AIDS TO BUSINESS

, The extent to which Government expenditures give direct and in­
direct support to business is not easy to determine. Appropriations
are not made nor broken down in terms of types of business whose
goods and services will be purchased. Obligational authority as pre­
determined in the budget m ay vary considerably from actual expendi­
tures. Contracts made in one fiscal period m ay involve cash outlays
in subsequent years. To determine with precision how much cash
flowed from the United States Treasury directly to business firms is a
task of careful estimation inevitably involving choice among assump­
tions.
A t the request of the Joint Committee on the Economic Report, the
Bureau of the Budget compiled estimates which are summarized in
table X IV below.1 Totals are given for direct payments alone. In ­
7
i« Committee for Economic Development, National Security and Economic Freedom, December 1949,
pp. 3-4.
1 The memorandum entitled “ Federal Cash Payments to the Public by Type of Recipient and Trans­
7
action,” is reproduced in appendix A, item VI.




75

JOINT ECONOMIC REPORT

eluded, for example, in payments to the military and to civilians for
wages and salaries are per diem allowances which for the most part
represented reimbursement for hotel and other expenses incurred
during travel on Government business. The check goes to the Gov­
ernment employee, the stimulus to business. Similarly, payments
for food are credited to the farmers though a portion, for example, of
ECA funds have gone to buy processed foods from food manufacturers.
Obviously, payments made by the Rural Electrification Administra­
tion are included under payments to farmers, though all of the funds
are transmitted via the cooperative to suppliers of electrical wiring,
poles, and equipment.
Such are but samples of the difficulties encountered in trying to get
a precise answer to the question, how much Government cash goes to
business firms.
Most conservatively estimated, the cash that goes directly to
business totaled at least $13.6 billion in fiscal 1949, will amount to
$16.0 billion in fiscal 1950, and is estimated on the basis of the present
budget to be about $16.9 billion in fiscal 1951. These figures do not
include $2.6 billion which will be paid to banks, insurance companies,
and other business organizations as interest on the United States
bonds they hold.
On the other hand, cash outgo to farmers is estimated to decrease
from $4.3 billion in fiscal 1950 to about $3.0 billion in fiscal 1951.
T a b l e X IV . — Cash outgo to business and to farmers
Governmental payments
To business:
Payments for goods and services________________________________
Loans, subsidies, and other transfers....................................................
Loans and transfers to foreign countries:
ERP loans and grants____ ________________________________
Other loans.......... ...................................................................... .
Other grants................................................................. ......... .......

1949

1950

1951

7.8
3.7

9.2
4.3

.9
-.1
1.0

1.3
.1
.7

Total__________________________________________________
Plus R E A .................................................... .... ............................

13.3

15.6

16.5

Total__________________________________________________

13.6

16.0.

16.9

2.2

2.3

1.8

1.5

1.1

1.6
.8

1.1
.5

4.8

4.7

3.4

4.5

4.3

3.0

To farmers:
Loans, subsidies, and other transfers____________________________
Loans and transfers to foreign countries:
ERP loans and grants______________________________________
_____
__________________________
Other grants
Less REA_______________________________________________
Net to farmers__________________________________________

.3

.3

.4

.4

10.9
4.0
1.1
0)

.5

.4

.4

1Less than $50,000,000.

The extent to which various types of business benefit from Govern­
ment outlays is again most difficult to estimate. A recent compila­
tion by the Bureau of the Budget provides fragments of an answer,
summarized in table XV.
Items readily identifiable as payments for services rendered
primarily by business are travel; transportation of things; communica­
tion services; rents and utility services; printing and reproduction;
contractual services representing in large part repairs and alterations
of government property; supplies and materials including fuels,




76

JOINT ECONOMIC REPORT

provisions, clothing, ammunition, and the like; equipment, largely
transportation equipment, machinery, apparatus, and armaments;
lands and structures; grants and subsidies; and to a substantial extent
interest.
T a b l e X V .— Summary of obligations by objects, general and special accounts, for
the fiscal years 1949, 1950, and 1951
Description

1949 actual

01 Personal services:
____ $5,818,471,829
Permanent position??..
499,948,433
Part-time and temporary positions____________
Military......................................................... ...... 3,651,041,098
Other_____________________________________ * -41,343,915

1950 estimated 1951 estimated
$5,793,430,629
461,783,395
4,008,750,453
187,124,183

$5,795,072,078
462,013,465
3,917,683,308
181,244,507

Net total_____________
_______________ 29,954,466,833 210,479,761,775 2 10,385,869,330
02 Travel. ...................................... ................ ...............
335,787,043
360,678,180
355,583,413
03 Transportation of things.............................................
994,066,487
899,780,287
784,154,014
04 Communication services_______________________
64,112,490
65,292,729
64,041,788
05 Rents and utility services______________________
203, 764,462
213,668,350
217,107,045
06 P rinting and reproduction_______________________
51,987,726
55,879,854
58,073,105
07 Other contractual services____ ____ _____________
2.109.885.287
1,955,744,377
1,367,141,315
Services performed by other agencies__________
185,517,098
129,894,508
126,908,783
08 Supplies and materials__________________________ 5,692,568,658 4,941,324,999
3,973,724,605
09 Equipment................................................................ 2.917.404.287 3,803,873,007
3,610,081,894
10 Lands and structures__________________________
1,343,603,233 2,008,126,752
1,359,260,954
11 Grants, subsidies and contributions.......... ............... 5,601,993,717
7,541,399,318
3,474,547,221
12 Pensions, annuities and insurance losses__________
5,764,709,619
5,508,337,560
5,310,067,407
13 Refunds, awards and indemnities________ _____
3,188,030,678
2,489,626,707
2,330,551,457
14 Interest______________________________________
5,447,283,936
5,825,573,768
5,732,221,204
16 Investments and loans__________________________ 2, 111, 340,475
1,359,953,073
1,190,513,963
Obligations not distributed by object class___________
9,936,682
19.290,387
13,090,500
Unvouchered____________________________________
24,677
592,245
160,000
Reserved for future allocation______________________
1,314,010,000
Total obligations____________________________

45,886,483,388

48,882,807,876

40,353,097,998

1Due to deduct charges for quarters and subsistence.
2Detail does not add to this total because of the inclusion of 1949, $10,105,655; 1950, $9,988,680; 1951,
$10,428,407 for Senate; and 1949, $16,015,540; 1950, $18,448,215; 1951, $19,178,710 for House; and 1949, $228,193;
1950, $236,220; 1951, $248,855 for miscellaneous not shown under the separate categories above.
S o u r c e .— Obligation schedules in part II of the 1951 Budget Document.
G O V E R N M E N T R E C E IP T S

A tabulation of Federal Government receipts for the current period
has already been presented in table X l-b . It shows the abrupt drop
in the total that occurred in 1949, and the amounts obtained from
individuals, from corporations, and other sources.
In the last 10 years marked changes have taken place in the distribu­
tion of the burden of taxation on individuals. In 1939 individual
income taxes took up 15 percent of the total tax burden. In 1949 the
figure is estimated at 37 percent, representing an increase of more than
two-fold while that collected by taxes on corporations increased less
than one-half. The reduction in the percentage obtained from cus­
toms duties and from estate and gift taxes is likewise striking. Be­
tween 1945 and 1949 the percentage collected by excise taxes increased
6 points from 12 percent to a figure of 18 percent, while the tax burden
borne directly by corporations went down 5 points from 32 percent to
a figure of 27 percent. Further detail is shown in table XVI.




77

JOINT ECONOMIC REPORT
T a b l e X V I. — Federal receipts from the public 1
[Fiscal years
Percent

Percent

Type of tax

Type of tax
1939 1945

Individual income taxes_____
Excise taxes________________
Customs
Employment taxes__ ________
Direct taxes on corporations----

15
26
5
24
19

37
12
1
6
32

1939

1945

Estate and gift taxes_________
Other*_____________________

5
6

1
11

2
7

Total...............................

100

100

100

1949
37
18
1
8
27

1949

1 Prepared from Budget Bureau documents and Treasury Bulletins. Figures for 1939 based on unpub­
lished worksheets of the Budget Bureau.
* Includes sale and rent of U. S. Government property, sale of U. S. Government products, repayment of
loans, etc.

The second notable change in the individual income-tax structure
has been the large increase in the percentage of the total that is paid
by those with incomes less than $10,000. This has, of course, been
due in the main to three factors: the drastic lowering of exemptions
during the war, the severe increases in rates in the lower brackets,
and the large increase in the numbers earning incomes over $2,000
annually in recent years.
In 1947, the last year for which the Bureau of Internal Revenue
has published detailed data, those earning less than $10,000 paid 62
percent of all income taxes. The smaller group in 1939 paid 18 per­
cent of the total. Contrariwise, those in 1939 whose taxable net
income was $25,000 or over, paid roughly 65 percent of the total,
in 1947 about 23 percent. Further details and comparisons are
shown in table XVII.
Although figures later than 1947 are not available the fact is well
known that the Internal Revenue Act of 1948 introduced substantial
modifications of the war rates. Exemptions for dependents were
increased 50 percent, and effective tax rates reduced all along the line.
On the brackets below $1,000 1936 rates were restored, on that of
$5,000,000 or over nearly so. In general the higher the income
bracket, the closer to 1936 levels the rate, except in brackets over
$2,000 but under $5,000 (the brackets in which the great bulk of the
wage-earners are foutvd). Incomes in the $5,000 to $6,000 bracket
pay taxes that average about seven times as high as the tax-take
before the war, those in the $6,000 to $8,000 bracket six times, those
in the $8,000 to $10,000 bracket nearly three-fold. Further com­
parisons are afforded by table XVIII.

66696— 50------- 6




78

JOINT ECONOMIC REPORT

T a b l e X V II. — Percentages of individual income-tax receipts paid by income groups 1
INDIVIDUAL RETURNS AND TAXABLE FIDUCIARY RETURNS
[Calendar years]
Gross income classes (thousands of dollars per year)

1944

19392

1945

1946

Under 2.......................................................................
2 under 5................ ............................... ...................
5 under 10....... ...................... ..................... .............
10 under 25............. ............... .................. ......... .......
25 under 50....... ......... .......... ................ ...................
50 under 100______ __ ______________ ___________
100 under 500............. ................................................
500 and over________________________ ____ ______

22
11

5

14
10
7
5

Total..................................................................

100

100

100

11

2

9
36
13
16

7
41
14
15

6

7
5

100

100

11

43

7
9
17
16
16

40

12

12

13
9
6

1

1947

11
8

1

10

1

1

1Based on data in Statistics of Income, Bureau of Internal Revenue. Figures for 1947 from Statistics of
Income preliminary report.
2 1939 classes by net (gross income less allowable deductions) income groups.
T a b l e X V I I I .— Comparison of effective rate of individual income tax under recent
revenue acts
MARRIED PERSON—NO DEPENDENTS
Bates applicable to income years
Selected amounts of net income
1936-39

$600..............................................................
$800......... ....................................................
$1,000-...........................................................
$2,000...........................................................
$2,500............................................................
$3,000............................................................
$5,000............................................................
$6,000............................................................
$8,000............................................................
$10,000..........................................................
$15,000..........................................................
$20,000................... ......................................
$25,000..........................................................
$50,000..........................................................
$75,000........................................ ................
$100,000........................................................
$500,000........................................................
$1,000,000......................................... ............
$5,000,000......................................................

1944-45

0.3
1.6
1.9
3.1
4.2
6.2
7.9
10.0
17.7
25.0
32.5
60.8
67.9
75.8

0,5
fl
1.5
12.3
14.4
15.8
19.5
21.1
23.6
25.9
31.3
36.6
41.2
55.2
63.5
69.4
88.8
90.0
90.0

1948-49

6.6
8.6
10.0
12.6
13.7
15.1
16.2
18.9
21.2
23.5
34.4
41.1
46.4
71.9
77.0
77.0

Percent
increase,
1948 over
1936

0)
(i)
3,233
687
602
387
286
205
168
135
94
64
43
17
14
1.6

Extent to
which war­
time rates
were
lowered
to prewar
levels
100
100
100
46.4
40.3
37.5
38.6
38.6
41.5
44.7
49.4
53.7
56.8
55.5
58.2
62.3
60.4
58.9
92.3

*Exempt in 1936.
Source: United States Treasury Bulletin, February 1947.
EX CISE TAXES

Individual income taxes are, of course, only one of several types of
taxes borne by the Nation’s families. It is they who pay the property
taxes on the houses they live in, who pay the sales taxes, fees, license
taxes, and other levies commonly charged as costs of production into
prices. In fact there are some observers who feel that consumers
bear at least some portion of the corporate income tax.1 It is they
8
who pay the tariff and $ 1 excise taxes, including those on liquor and
1
tobacco. In 1949 consumers paid over 7% billion dollars of excise
taxes and will pay somewhat more in 1950.
1 Majority report of the Joint Committee on the Economic Report in 1948, p. 4.
8




79

JOINT ECONOMIC REPORT

The levy on transportation of property, for example, enacted in
1942, equivalent to 3 percent (4 cents per ton in case of coal) is pyra­
mided possibly two-and-a-half-fold in the retail prices consumers pay
(assuming costs of distribution at 60 percent). It yielded $337,000,000 in fiscal 1949, and may yield roughly similar amounts in fiscal
1950 and 1951.
Similarly the tax on transportation of persons, originally designed to
reduce civilian travel during the war, yields roughly a quarter of a
billion a year. Taxes on long-distance telephone and telegraph service
yield about $300,000,000 a year.
Retail excises (generally 20 percent since 1943) are levied on many
items such as jewelry, toilet preparations, leather goods, furs, and
entertainment, to some extent regarded as luxuries. The tax yields
are shown below:
1949
Toilet preparations______________ _____________________
Luggage, handbags, etc_______ __________ ______________
Jewelry_____ _____ __________________ _______________
Furs..........______....................................................................

$94,000,000
83.000.000
211, 000,000
62.000.000

.

1950
$94,000,000
79.000.000
199,000,000
54.000.000

1951
$95,000,000
80,000,000
201, 000,000
55,000,000

ESTATE T A X E S

Among other changes that have been made in the tax structure
during the last 10 years are those referred to by Secretaiy of the
Treasury Snyder in his testimony concerning estate and gift taxes.
The percent of total income derived from individual income taxes has
gone up from 20 percent in 1939 to 45 percent in 1949, that derived
from estate and gift taxes has gone down from 7 percent to 2 percent
of the total. See chart 10.
The reason is not far to seek. Exemptions on income taxes have
gone down, those for estate taxes up. Income-tax exemptions were
lowered for heads of families from $2,500 in 1939 to $1,200 in 1949,
those of single individuals from $1,000 down to $600. Estate-tax
exemptions for married persons has been raised from $40,000 in 1939
to $120,000 in 1949, for single persons from $40,000 to $60,000.




80

JOINT ECONOMIC REPORT
C h a r t 10

-.

INTERNAL ftEVENUE DERIVED FROM,

Office of the Secretary of the Treasury.
TH E FEDERAL DEBT

The difference between governmental expenditures and govern­
mental revenues is reflected, of course, by a change in the magnitude
of the governmental debt. Since 1916 the Federal debt has increased
over 200-fold, while State debt has quadrupled. Corporate long-term
debt has increased only 70 percent and farm debt less than 30 per­
cent. On the other hand, corporate short-term debt has increased
over 5% times and individual nonfarm—that is, consumer debt—has
nearly tripled. Other comparisons are provided in table X IX below.
T a b l e X I X . — Public and 'private debt
[Billions of dollars]

End of year

1916...........................
1920...........................
1929...........................
1933......................... .
1938...........................
1940..........................
1948...........................

Public

Public
and pri­
vate

Private

82.1
135.4
191.1
169.7
180.9
190.9
429.4

76.5
105.8
161.5
128.9
124.4
129.6
196.7

Corporate

Federal1 State and
local

1
.2

23.7
16.5
24.3
40.5
44.8
216.5

4.4
5.9
13.1
16.5
16.0
16.5
16.2

Long
term
29.1
32.6
47.3
47.9
44.8
43.7
49.6

Individual

Short
term
11.1

25.1
41.6
29.1
28.4
31.9
62.5

Farm
7.8
14.1
12.2

9.1
9.0
9.1
10.5

Non­
farm
28.5
34.0
60.4
42.8
42.1
44.9
74.1

i Held outside Government. This likewise does not include the sums for which the Government might
be committed by virtue of its loan guaranty and insurance programs. For a full tabulation of these items,
see appendix A, item VI, Status of Major Federal Loan, Loan Guaranty, and Loan Insurance Programs,
June 30,1949.




A p p e n d ix A

I. PRO D U CTIV ITY ESTIM ATES A N D D E F LA T IO N OF GROSS
N A TIO N AL PRO D U CT
E x e c u t iv e O f f ic e o f t h e P r e s id e n t ,
C o u n c il o f E c o n o m ic A d v is e r s ,
Washington, D . C., March #, 1950.

Numerous inquiries about the estimates of the rate of secular growth of the
economy and of the increase in productivity presented in the Annual Economic
Review by the Council of Economic Advisers, which was published with the
Economic Report of the President on January 6, 1950, demonstrates the wide
interest in this important subject. This interest, the Council believes, confirms
its opinion that national economic policies should be based in large part upon
consideration of the rate of secular growth and that intense professional study
should be directed to developing information far more adequate than that we
now possess upon this matter.
Our studies and those under way in other Government and professional groups
are quite inadequate to support any firm conclusion about increases in produc­
tivity over a short range. The difficult task of determining a deflator by the
application of which statistical data over a long period may be brought to a
common base unaffected by price changes is only partially performed and this
permits only tentative conclusions about changes in gross national product.
While it recognized the imperfections inherent in any estimate at this stage of
our study, the Council believed that the general course of secular growth and
the approximate rate thereof for a total period of six decades are well enough
established by existing data to justify the inclusion in its Annual Economic
Review of long-term estimates and to permit the publication of charts even though
they seem to indicate some changes for short periods which it can offer in only
the most tentative manner at this stage of its study. Charts 15 and 16 on pages
76 and 77 of the Annual Economic Review have been responsible for may requests
for information as to data and methodology used in their construction. In
order to respond to these requests, the Council has directed its staff to prepare
the following staff report.
L e o n H . K e y s e r l in g , Acting Chairman.
P r o d u c t iv it y E s t im a t e s

and

D e f l a t io n

of

G r o ss N a t io n a l P r o d u c t

Chart 15, National Output and Labor Input, in the Council's Economic Review,
January 1950, was intended primarily to show long-term trends in productivity.
For this purpose, total gross national product (constant dollars) per man-hour
was used. This output per man-hour was obtained by dividing the deflated
GNP total by total man-hours worked within the economy, that is, average hours
per employed worker multiplied by the total number of employed workers. For
the chart, all of the items shown were expressed as percent of 1890.
The data are not precise enough to measure year-to-year changes in output.
m e th o d of d e f l a t in g g rqss

NATIONAL PRODUCT, 1929

to d ate

The estimates of gross national product in constant dollars, 1929 to date, are
preliminary and are subject to revision when the method of deflation has been
improved. The GNP total in constant dollars was obtained by adding up the de­
flated figures for each of the major accounts— personal consumption expenditures,
pifiVate domestic investment, net foreign investment, and Government purchases
of goods and services. Each of these account totals in turn was derived from the




81

82

JOINT ECONOMIC REPORT

deflated amounts of its major subgroups. For the years 1929 throughl940, a very
complicated and detailed procedure for making adjustments for price changes
was used in most cases; 1941 to date, a rather rough procedure was used. All
current dollar data since 1929 are the regularly published GNP series of Commerce.
Personal consumption expenditures
Goods.— From 1929 through 1945, several hunderd price series from different

sources were utilized for deflating consumption expenditures for goods on a fairly
refined category basis. After 1945, commodity groups of expenditures were de­
flated by appropriate components of BLS consumers’ price index, reweighted by
consumption expenditures. These price series are the same as those used in cal­
culating the retail price index of all commodities, as currently published by the
Department of Commerce.
Services.— Housing and “ all other” services were deflated separately by appro­
priate components of the consumers’ price index.
Private domestic investment
New construction.— Current dollar estimates of the various types of construc­

tion were deflated by appropriate cost indexes for private construction, as pub­
lished by the Construction Division of the Department of Commerce.
Producers’ durable equipment.— The current dollar totals were deflated mainly
by BLS wholesale price series for machinery and equipment through 1947 when
many of these series were discontinued. After that, the metal and metal products
price series was used as the deflator.
Change in business inventories.— The National Income Division’s published
estimates of net change in nonfarm inventories in current dollars are based on
their unpublished data on change in volume of inventories in constant dollars.
These unpublished constant dollar series, which are available upon request from
the Department of Commerce, were used.
Net foreign 'investment

Since 1946, the difference between current dollar estimates of exports and other
sources of receipts, deflated by the unit value index of exports of United States
merchandise, and imports and other payments, deflated by the unit value index
of imports for consumption, was used. Prior to 1946, a more elaborate procedure
was employed, but the basic methodology was the same. These unit value indexes
are published regularly by Commerce.
Government purchases of goods and services
Compensation of general Government employees.— The base-period current dollar

estimates of this component were moved by changes in employment or man-hours
of employment, assuming no change in the productivity of Government workers.
Purchases of goods and services.— Purchases of goods and services by Government
from the private economy were divided into three components and deflated
as follows: (1) public construction was deflated by cost index for public construc­
tion, as published by the Construction Division of the Department of Commerce:
(2) purchases of farm and food products were deflated by the index of prices
received by farmers, as published by the Department of Agriculture; and (3) all
other purchases by the BLS wholesale price index of other than farm products
and foods.
METHOD OF ESTIMATING GROSS NATIONAL PRODUCT IN CURRENT AND CONSTANT
DOLLARS PRIOR TO 1929

1 9 1 9 -1 9 2 8 .— The various segments of the current dollar estimates for 1919 to
1928 are based on published series from government sources, the National Bureau
of Economic Research, and the Twentieth Century Fund, with appropriate
adjustments to bring them into conceptual agreement with the official Commerce
estimates for the period 1929-1949. The total gross national product was then
deflated by a price index derived from estimates of gross national product in
current and 1929 dollars, published by Kuznets.
Prior to 1919 .— Decade estimates of gross national product in 1929 prices by
Kuznets were used. A figure for 1890, the base year, was computed from the
overlapping 5-year estimates. These are published in Historical Statistics of
the United States, 1789-1945, page 15.




JOINT ECONOMIC REPORT

83

METHOD OP ESTIMATING AVERAGE MAN-HOURS PER EMPLOYED WORKER

194S to date.— A weighted average of man-hours per employed civilian worker

was calculated from civilian employment by man-hours, as reported by the
Bureau of the Census in their “ Monthly Report on the Labor Force.” Average
man-hours worked in agriculture and in nonagricultural industries were calculated
separately and then weighted to obtain an average for total civilian employment.
In the absence of data on hours worked by the armed forces, it was assumed their
average hours to be the same as for civilians.
Prior to 1948.— Since estimates prior to 1943 were not available on an annual
basis, the estimates, by decades, from 1890 to 1940 were used. These estimates,
calculated by Dewhurst and published in the Twentieth Century Survey on
America’ s Needs and Resources, appendix 3, p. 695, tie-in with the Census labor
force series from 1943 to date.
METHOD OP ESTIMATING TOTAL EMPLOYMENT

Total employment estimates were based on separate estimates for civilian
employment and the armed forces.
Civilian employment
1929
to date.— The civilian employment as reported by the Census Bureau in

their labor force series, was used.
Prior to 1929.— Decade estimates for 1890 and 1900, and annual estimates for
1920-28 were made by Stanley Lebergott. These estimates were based on
extensive study, most of which was published in the Journal of the American
Statistical Association, March 1948, pages 74-93.
Armed forces

Data as reported in the Statistical Abstract of the United States, 1949 for the
Army and the Navy were used for the same years for which civilian employment
data were available. An estimate was made for the Navy strength for a year
or two missing during the earlier period when there was little year to year change.
EVALUATION OP THE PRODUCTIVITY METHOD USED

Since annual changes in productivity are so small and the margin of error in
estimating the gross national product and in reducing it to constant dollars is
fairly large, the method described above is not satisfactory for estimating yearto-year changes. It may be used to give a rough picture of long-term trends,
or the movement over a span of several years, although problems of product
incomparability over a period of time, and the choice of relative price weights,
make only broad conclusions possible. For the period 1946-49 the apparent
growth in the productivity was from 1J£ to 2 percent a year for the economy
as a whole.
Most published series regarding productivity relate to segments of productive
activity, manufacturing, mining, or subgroups of these rather than to the economy
as a whole. However, an estimate of the increase in national income per manhour of 1.8 percent per year for the period 1850 to 1940 was published in 1947
by the Twentieth Century Fund in America's Needs and Resources. This is
not strictly comparable with the estimate of 2 to 2 y2 percent increase in output
per man-hour per year shown in the accompanying table, since the latter is an
estimate of the increase in gross national product per man-hour rather than
national income. More important, however, the attached estimates of output
per man-hour for the period following 1919 were based on revised series for
national product and income in current dollars and on what are believed to be
improved methods of deflating the current dollar series. (The employment esti­
mates are also somewhat different from the Twentieth Century Fund study, but
this probably has less significance.) For earlier years the degree of uncertainty
in all estimates is great. However, there does not appear to be a significant
change in trend between the period 1890 to 1919 and the period following 1919.
DATA USED FOR CHART

The data are still considered preliminary and subject to further improvement.
But the indexes as used for the chart are considered sufficient to indicate the
approximate trend in national output and labor input since 1890. These indexes
are given in the attached table.




84

JOINT ECONOMIC REPORT

Tabulation for chart 15 , Council's Economic Review , January 1950 , national output
and labor input
[1890=100]
Gross
national
product
(constant
dollars)
1890..................................................................................
1889-98.............................................................................
1900.................................................................................
1889-1908..........................................................................
1910..................................................................................
1909-18..............................................................................
1919.................................................................. ...............
1920..................................................................................
1921..................................................................................
1922..................................................................................
1923..................................................................................
1924..................................................................................
1925..................................................................................
1926..................................................................................
1927..................................................................................
1928..................................................................................
1929..................................................................................
1930..................................................................................
1931..................................................................................
1932..................................................................................
1933..................................................................................
1934..................................................................................
1935..................................................................................
1936............................................................ ................... .
1937.................................................................................
1938..................................................................................
1939.................................................................. ...............
1940....... ..........................................................................
1941..................................................................................
1942..................................................................................
1943............................................... ..................................
1944..................................................................................
1945..................................................................................
1946..................................................................................
1947..................................................................................
1948..................................................................................
1949..................................................................................

100.0
1112.8
149
1173.8
1238.0
320.0
301.2
280.7
313.3
358.3
362.2
378.7
395.9
402.3
413.7
443.9
403.2
371.0
312.9
313.5
349.2
380.2
432.0
452.2
431.1
469.1
514.6
605.4
695.7
792.3
834.9
806.2
732.3
737.5
762.9
* 749.7

Output
per manhour

Total
employed
workers

Average
hours per
employed
worker

100

100

100.0

125

124

96.3
91.0

207

270

359
385
409
409
424
428
443
3446

179.6
164.6
174.8
187.6
186.3
192.0
198.2
198.7
200.9
211.9
202.4
188.8
173.4
172.6
182.1
188.2
197.8
206.3
197.2
204.1
212.0
229.3
254.7
280.3
288.6
283.6
259.1
263.1
268.5
266.6

82.1

74.7

68.1
74.0
71.5
70.0
67.3
66.0
64.6
64.9

1Estimates plotted on chart at center of decade.
8 Estimates based on revisions made in basic data subsequent to publication of the report.
Unrevised estimated indexes used in chart 15 were 755.4 for gross national product (con­
stant dollars) and 450 for output per man-hour.

II. CAPITAL EQU IPM EN T BOOM AND BACKLOG
[Capital Goods Review, Machinery and Allied Products Institute, Chicago, February 15,1950]

The Machinery and Allied Products Institute inaugurates with this
issue a new publication, devoted to the economics of capital goods and
the economic problems of their producers. It will be edited by our
director of research, George Terborgh, and will appear for the present at
quarterly intervals. We are confident that this addition to our service
will be valuable not only to M API member manufacturers but to the
public generally.
W il l ia m J. K e l l y , President.
T h e P r e s e n t P o s it io n

o f th e

C a p it a l E q u ip m e n t M a r k e t

It is evident to anyone who has given the subject even cursory attention that
whatever may be said of certain relatively depressed lines like machine tools,
capital equipment in general has been enjoying a postwar boom. It is easier
to recognize the boom, however, than to appraise its dimensions or to estimate
its probable duration.




JOINT ECONOMIC REPORT

85

To judge its dimensions, we must have at least a rough idea of the level of
activity that can be considered “ normal” for the postwar period, while to esti­
mate its probable duration we must assess the “ backlog” of deferred demand
carried over from the war and the great depression of the thirties. Unfortunately,
both judgments are difficult to arrive at, and the results can be at best only
tentative. Even tentative conclusions are better than none, however, if their
provisional nature is kept firmly in mind.
Normal equipment demand for the postwar period

One approach to the determination of normal is the projection of historical
trends. This approach we propose to explore with reference to capital equipment.
How does the postwar level look in relation to an extension of past trends?
Those interested primarily in particular sectors of the equipment market will
note that the present analysis relates only to the grand total of all kinds of pro­
ducers' equipment, including agricultural, industrial, public utility, commercial,
and miscellaneous. There is of course the greatest diversity of situation and
outlook from one type of equipment to another; hence the picture for the aggre­
gate of all types may have but limited significance for any one of them taken
singly. Even if this picture were entirely clear, therefore— and we shall see that
it is not— it would still be necessary to exercise extreme caution in drawing infer­
ences as to the prospects for particular lines.
With this warning, we may proceed to chart 1, which shows private expenditures
for productive equipment over the past 50 years at constant (1929) prices, with
a trend line fitted to the period 1900-30.
Over the 30 years preceding the great depression, equipment expenditures at
constant prices moved irregularly upward at an average rate (as indicated by the
trend line) of slightly under 3 percent per annum.2 If we project this rate of
growth to the postwar period as a tentative measure of normal, the recent expend­
iture level appears very high indeed, the peak, in 1948, being roughly 50 percent
above the trend value.
This is not the only attempt that has been made to appraise postwar equipment
activity by the projection of historical growth trends. A recent study by the
Department of Commerce, based, like our own, on expenditures for all producers'
equipment at 1929 prices, but using different data for the last two decades and
a different trend calculation, comes out with a 1948 volume about 35 percent above
normal.*
There are too many imperfections in the figures and estimates entering into
these two studies, and too many legitimate differences of opinion on statistical
procedures, to permit anyone to say flatly which investigation gives the more
reliable result. For reasons we need not detail here, we are inclined to believe
that the truth lies between the two, and that the indicated results should be
regarded as the upper and lower limits of a reasonable range. On this basis, we
can say that equipment activity in 1948 was from a third to a half above normal
as indicated by a projection of the predepression growth trend.
At the present time (January 1950), the total output of equipment appears to
be running around 15 to 20 percent below the 1948 average. Notwithstanding
this substantial decline, however, it is still above the trend line by about 20
percent on our figures and by 5 to 10 percent on the Commerce figures.4 If this
line is a measure of normal, therefore, we are warranted in concluding that we
are still moderately above it.
There is another approach to the appraisal of postwar equipment activity
which provides an interesting check on the one just presented. Instead of the
absolute amount of equipment expenditures, we have in chart 2 the percentage
which they constitute of the value of all physical production, the reckoning being,
again, at constant prices.
* It will be noted that the scaling of the chart is logarithmic, giving at all points equal vertical distances
for equal relative, or percentage, changes. A straight line trend denotes, therefore, a constant percentage
growth rate.
» S. Morris Livingston, The Demand for Producers' Durable Equipment, Survey of Current Business,
June 1949, p. 8.
* After allowing for the rise in the line since 1948 (about 4.5 percent).




Chart 1

EXPENDITURES FOR PRODUCERS’ EQUIPMENT1
(At 1929 Prices)

JOINT
ECONOMIC
REPORT

1
Covers private expenditures only, including purchases of used equipment from the Federal Government after the war.
and other fixed improvements to real estate.




The term “ equipment” does not include buildings

EXPENDITURES FOR PRODUCERS’ EQUIPMENT AS A PERCENTAGE
OF THE VALUE OF ALL PHYSICAL PRODUCTION
(At 1929 Prices)
JOINT
ECONOMIC
REPORT




Chart 2

oo

88

JOINT ECONOMIC REPORT

Here also the postwar data rise far above the projection of the 1900-30 trend
line, the greatest excess, in 1948, being, as in chart 1, in the vicinity of 50 percent.
Unfortunately, the Commerce study does not exploit this approach, and accord­
ingly does not permit a direct comparison with this result, but it is clear that had
it done so it would have come out-, as it did by the first approach, with a lower
excess over trend than our figures indicate. Assuming again that the truth falls
somewhere between the two studies, we can conclude that the indications of this
second approach are generally consistent with those of the first, namely, a postwar
peak (1948) from a third to a half above normal and a present level 5 to 20 percent
above it.
The postwar backlog

That expenditures have been high does not mean, of course, that they must
necessarily descend forthwith to the estimated normal. For we may still have a
backlog of deferred demand resulting from the subnormal rate of expenditures
during the war itself (chart 1) and from the low level prevailing during the de­
pression of the thirties. Let us consider this angle for a moment.
The size of the postwar backlog is sometimes measured by cumulating the
amounts by which equipment expenditures after 1929 (at constant prices) fell
below estimated normal. It is then assumed that the entire deficiency remained
to be “ made up” later by an equivalent excess of expenditures above normal. If
we use as the measure of normal the trend line indicated in chart 1, the postwar
equipment backlog by this reckoning was about $35,000,000,000 (at 1929 prices).
According to the Commerce figures it was even higher (about $45,000,000,000).
How far has this accumulated deficiency been offset by expenditures in excess
of normal since 1945? By our data, the offset amounts to rbughly one-half; by
the Commerce data it is around one-quarter. Assuming once more than the truth
may lie between the two, should we conclude that the postwar backlog has been
only a quarter to a half “ made up” ? By no means. There is no reason to sup­
pose that a huge deficiency like this, accumulated over a period of 15 years, ever
will be compensated in full by later expenditures in excess of trend. Nor is this
necessary in order to restore the stock of equipment in use to normal size and age
composition, this being accomplished gradually merely by the resumption and con­
tinuance of normal expenditures for new equipment. If we have already “ made
up” a quarter to a half of the accumulated deficiency of 1930-45, it is not unreason­
able to infer that we may be approaching the end of the operation.
This inference is reinforced by consideration of the size of the stock of capital
equipment now in us^. While there is no satisfactory measure of changes in the
size of this stock in the past, hence no satisfactory measure of normal for the
present time, we can get a rough idea by assuming, arbitrarily, that the gross stock
has at all times equaled the expenditures (at constant prices) of the preceding
15 years. If then we project to the present a trend line fitted to these stock esti­
mates for 1915-30, we find the current stock (representing the expenditures of
1935-49) very close to trend by our figures and slightly below by the Commerce
figures. If the same calculation is applied using for the stock throughout a 20-year
cumulation of expenditures, the present position is below trend by both reckon­
ings, but not by a very wide margin, our data indicating a deficiency of about 10
percent, the Commerce data a deficiency of around 20 percent. Thus it appears
from these calculations that the existing stock of capital equipment, as expanded
by the phenomenally heavy installations of the past 4 years, is not too far from
normal size.
Conclusion

While this appears about the best that can be done by an analysis of historical
trends, the measure of normal they yield is of course far from conclusive. Too
much water has run over the dam since 1930 to permit us to say with any assur­
ance that a projection of the growth rate for a long period prior thereto constitutes
a reliable test of normal for today. Nevertheless, while the results of this analysis
cannot be read closely, they do offer a useful provisional indication of where we
stand. They suggest that postwar equipment expenditures in the aggregate have
been well above normal and are still moderately above it. They suggest also that
•the present stock of equipment in use is approaching normal, though still moder­
ately below it. From this we may infer that the postwar backlog of deferred
demand, while by no means wholly “ made up,” is largely behind us.
If these broad conclusions are warranted, it means that from here on out the
market for equipment will depend largely on currently accruing demand, with
rapidly diminishing benefit from the postwar backlog. It means, by the same
token, that if the equipment producers are to maintain an aggregate volume




JOINT ECONOMIC REPORT

89

comparable to that enjoyed since the war they must create a new normal by
stimulating a more rapid turn-over of the country’s inventory of capital equipment.
Fortunately, they are favored in this undertaking by an unusual relation between
equipment prices and hourly labor costs. It is not uncommon for equipment
prices to lag the rise in these costs; indeed, the historical record indicates that it is
normal for them to do so, but the degree of lag since prewar has been phenomenal.
Including nonwage benefits such as pensions, insurance, paid holidays, paid
vacations, and the like, the average cost of an hour’s labor in industry generally
is more than 130 percent above 1939, while the average advance in equipment
prices has been roughly half as much. This places an exceptional premium on
labor-saving through remechanization and helps, accordingly, in the establishment
of a new normal for equipment activity.
The market is favored also by the fact that for many important classes of
equipment, particularly those produced in large volume during the recent war,
the technological age of the present stock is considerably higher than its chrono­
logical age. This reflects the fact that prewar models and designs were frequently
frozen for the duration. Where this occurred, the wartime vintage presents a
technological plateau, rather than the gradual improvement more usual in normal
times. While the importance of this factor varies from one line to another (in
an extreme case, machine tools, it is estimated that more than 90 percent of the
present stock consists of prewar models), it cannot fail to have some beneficial
effect on the future demand for equipment in total.
While these favorable factors are all to the good, the basic approach to the
enlargement of demand is through the rationalization of equipment policy by
American industry. The Institute has been at pains to point out repeatedly
that the possibilities of such rationalization are enormous. This is the main
thesis of its book, Dynamic Equipment Policy, and of the sequel, The M A PI
Replacement Manual, recently issued. It is our conviction that the adminis­
tration of equipment policy is presently the most backward area of management,
in this country as elsewhere, and that the general adoption of good policy would
redound to the benefit not only of producers of equipment, but of the Nation as
a whole. It is here, fundamentally, that a new normal must be sought.




III. E M P L O Y M E N T OPPORTUNITIES A TTR IBU TA BLE TO
U N IT E D STATES EXPORTS, 1949*

The relationship between exports of goods from the United States
and domestic employment levels is complex and difficult to place in a
quantitative framework. One approach is to determine the changes
in domestic production levels which would occur if all exports were
terminated, if all deliveries to domestic purchasers were unchanged,
and if adjustments were made in production schedules throughout the
economy so that inventories remained unaltered. The mechanism for
carrying through such an analysis is provided by the Bureau of Labor
Statistics study of interindustry relations, which makes it possible to
account for the production of raw materials and intermediate products
required to maintain the exports of finished goods. The changes in
production levels implied by such analysis may be expressed in terms
of job opportunities directly and indirectly dependent on exports, on
the assumption that output per worker remains the same.
Following this scheme of analysis, nearly 1.7 million persons in 1949
were employed directly and indirectly in nonagricultural industries in
the production of goods destined for foreign markets. This total
includes workers attached to industries whose products were sold
diiectly to foreign countries and also workers in other industries who
were required to produce, transport, and distribute the raw materials,
components, and services purchased for incorporation in exported
goods.
This represents a decline of more than 600,000 job opportunities
provided by exports since the first half of 1947, reflecting a drop of
more than one-quarter in the exports of nonagricultural products
during this period. The impact varied from industry to industry
depending on changes in the export pattern and on differential move­
ments in productivity and working hours. The greatest relative
declines were experienced in the transportation equipment, lumber and
furniture, and textiles, apparel and leather groups. The greatest
absolute impact was felt in the metals and metalworking industries.
For this segment (the first four groups in the accompanying table),
employment opportunities dropped 230,000. Next in absolute
importance was the decline of 125,000 job opportunities for the textile,
leather, and apparel group.
The estimates properly refer to job opportunities rather than
employment levels. For example, a decline in export demand which
would tend to reduce job opportunities might be completely balanced
by increases in domestic demand for the products of the same industry.
Nevertheless, for many industries export demand is an important fac­
tor in connection with production and employment levels.
*By Marvin Hoffenberg of the Bureau of Labor Statistics, Division of Interindustry Economics, May
1950.
90




91

JOINT ECONOMIC REPORT

Agriculture has been omitted from the estimates because shortrun changes in demand may affect farm income more immediately
{han farm employment. In the nonagricultural industries there is
likely to be a closer relationship between job and production levels.
However, the estimates include the nonagricultural employment
required to support the exports of farm products. During the period
considered, exports of agricultural products increased by 60 percent
in contrast with the 29 percent decline for nonagricultural com­
modities. The decline in total exports over the period, including farm
products, was 23 percent.
A more detailed analysis of this type for 1939 and the first 6 months
of 1947, including additional methodological notes, was published in
the Monthly Labor Review for December 1947.
Nonagricultural employment attributable directly and indirectly to exports from
continental United States, January to June 1947 , and annual 1949

Industry 1

1949kvolume
of exports 2
(January
to June
1947=100)

Employees in nonagricultural estab­
lishments dependent upon exports 3

January
to June
1947

Annual
1949

Index in
1949 (Jan­
uary to
June
1947=100)

Primary metal industries4________ ________ ______
Fabricated metal products____ _____________ ______
Machinery (includingelectrical).............................. .
Transportation equipment.............................................
Stone, clay and glass products5....... ..............................
Fuel and power«_______ _________________ ______
Chemicals.- ________ ___________
___
Lumber and furniture____________ _____ __________
Wood, pulp, paper, printing and publishing.................
Textiles, apparel and leather........................................
All other manufacturing 7
...............................................
Transportation8
............... ..........................................
Trade and services9
...................................................

68
86
84
52
69
57
113
56
67
53
66

220,000
85,000
350,000
195.000
45.000
150.000
85.000
75.000
65.000
260.000
160,000
265.000
405.000

155,000
70.000
290.000
95.000
35.000
125.000
85.000
40.000
40.000
135.000
100.000
225.000
305.000

71
79
82
49
72
85
98
51
60
52
61
85
76

Total io...................................... .......... .............

71

2,360,000

1,695,000

72

1With minor exceptions, these industry classifications correspond with those used by the Employment
Statistics Division of the Bureau of Labor Statistics.
2Annual rate indexes based on data furnished by Foreign Trade Division, Bureau of the Census, and
deflated by Bureau of Labor Statistics to 1939 dollar values. Shipments from continental United States
to noncontiguous territories (Alaska, Hawaii, Puerto Rfco, Guam. Midway, and the Virgin Islands) are
classified as exports. The total given for exports excludes agricultural products. Agricultural exports in­
creased 60 percent during the period considered, and the index for total exports including agricultural prod­
ucts would be 77.
3Employment rounded to nearest 5,000; index based upon unrounded figures.
* Includes metal mining.
5Includes nonmetallic mineral mining and quarrying.
6 Includes coal mining; crude petroleum production and refining; coke and manufactured solid fuel;
natural and manufactured gas production and distribution; and electric power.
7Includes food processing and kindred products; rubber; and the miscellaneous manufacturing industries.
s Includes steam railroads; water transportation; local and interurban transportation; and the miscella­
neous transportation industries.
9Includes wholesale and retail trade; communication; and business and personal services.
w Totals may not add due to rounding.




IV . PRICES P A ID A N D RECEIVED B Y FARM ERS, 1910-49
Indexes of prices received for farm products and prices paid by farmers for commodities
used in production, 1910-49 1
[1910-14=100]

Year

L910.........................
1911..........................
1912.........................
1913..........................
L914.........................
L915..........................
L916.........................
L917.........................
L918..........................
1919.........................
L920.........................
L921.........................
1922.........................
1923..........................
1924.........................
1925.........................
1926.........................
1927.........................
1928.........................
1929.........................

Prices
paid for
Prices
Prices
received comm odi­ paid for
for farm ties used farm ma­
chinery
p rod u cts in pro­
duction
103
95
99
102
102
99
119
178
206
218
212
124
131
142
143
156
146
141
149
148

97
98
102
101
102
104
115
156
180
195
195
128
127
138
140
145
141
141
148
146

100
100
100
100
100
• 103
108
123
155
160
166
160
143
148
155
154
154
155
154
153

Year

1930...
.......
1931 _.
___
1932........................
1933........................
1934.........................
1935.........................
1936.........................
1937.........................
1938.........................
1939.........................
1940.........................
1941.........................
1942.........................
1943.........................
1944.........................
1945.........................
1946.........................
1947.........................
1948.........................
1949.........................

1 Revised Jan. 1,1950.
Bureau of Agricultural Economics, Department of Agriculture.

92




Prices
Prices
paid for
Prices
received commodi­ paid for
for farm ties used farm ma­
products in pro­ chinery
duction
125
87
65
70
90
109
114
122
97
95
100
123
158
192
196
206
234
275
285
249

135
113
99
99
114
122
122
132
122
121
123
130
148
164
173
176
191
224
250
238

152
150
142
138
144
148
150
153
158
155
153
154
164
175
170
176
182
206
240
270

93

JOINT ECONOMIC REPORT
V. BILLIO N A IRE

CORPOP ATIONS— BUSINESS
M ENT, DEC. 31, 1949
Assets1

Corporation or political unit

T S. Government------------------------- ------------J.
American Telephone and Telegraph Co.............
New York State................ ..........................
General Motors Corp........................................ .
California............ ................. -......................
United States Steel Corp..................................
Washington, D. C.__.............. ....................
Pennsylvania.............................................. .
Illinois..........................................................
O h io --............. -............ - ........................
Michigan................ ................ ....................
Texas...... .....................................................
General Electric Co.............. ................. ............
New York City.............. .............................
Massachusetts.......................... ..................
Pennsylvania Railroad............ ..................... .
Bethlehem Steel f ’orp - ............—....... -............
Standard Oil Co. (New Jersey)..........................
New Jersey--------------------------------- ------ ..
New York Central Railroad Co.........................
Indiana.........................................................
Wisconsin.....................................................
Minnesota..... ....... . ....................................
Missouri.......................... ...........................
Iowa......... .................................................
North Carolina....... .....................................
Florida............................................ ............
W ashington.................. _............................
Virginia ........................................................
Georgia. ................................ -......................
Louisiana.....................................................
E. I. du Pont de Nemours..................................
Tennessee.....................................................
Alabama..................................................... .
Atchison, Topeka & Santa Fe Railway Co.........
Southern Pacific Co _..................... ................ .
Kansas.................. ................ ....... ..............
Oklahoma............. .....................................
Kentucky....... ............ . . ......... ........ ..........
Baltimore & Ohio Railroad Co__.......................
Maryland..................... -.............................
Connecticut..................................................
Oregon .......................................................
Union Pacific Railroad Co...............-.................
West Vireinia....... .......................................
Standard Oil Co. (Indiana)..... ..........................
Nebraska......._......... ....... ..........................
Prudential Insurance C'o. of America.................
Soco^y-Vacuum Oil Co......................................
Colorado.......................................................
Texas Co................................ ...........................
Consolidated Edison Co. of New York, Inc
Standard Oil Co. (California).......... ___..............
Chicago, Til........ ................................ .........
Detroit, Mich......... .....................................
North Dakota...............................................
Metropolitan Life Insurance Co_.......................
Los Angeles, Calif........................................
South Dakota..............................................
Philadelphia, Pa..........................................
Rhode Island................................................
Montana.......................................................
Boston, Mass...................................... ........
Cleveland, Ohio...........................................
San Francisco, C alif....................................
John Hancock Mutual Life Insurance Co..........
American Power & Light Co............................
Hotllr a/ A Imc ri/tQ *N afiA iol H w Ot Q V U lg S
X T
P iof tr a
• D o uli O l AU A C o iN aiU O IIcU irUot J O atrinrra
u
Association......................................................
Baltimore, Md.............................................
Travelers Insurance Co......................................
National City Bank of New York......................
St. Louis, Mo___ •
„......................................
See footnotes at end of table, p. 96.
6669G— 50---- —7




VERSUS

Revenues *

Rank
Amount accord­ Amount
ing to (millions)
(millions) size of
assets

GOVERNEmployees8

Rank
Rank
accord­ Number accord­
ing to
ing to
(thou­ number
size of sands)
reve­
of em­
nues
ployees

<$61,781
10.775
27.509
2,824
8 jo. 132
2.556
1,872
io n . 048
22.391
8 12.829
9.723
5,296
81.177
1318,112
1 6,830
4
2,280
* 1,155
83.526
5,794
81.756
i«4.571
87,929
81. so9
104.327
83,349
83,706
82.890
1.599
1 3,505
4
101,415
81.886
1,749
81,910
81,423
8 if 293
81,803
183,^5
81,649
18»4J49
s i,234
3,503
83,895
81.401
81,187
ip 2.296
1,551
2,638
8,325
8i ,443
to i t4^
81,277
81,449
81.075
88.045
u 3,980
1,097
9,708
1 2,429
3
81.263
3,466
101?6Q
3
81,374
1,601
1,649
«1,093
2,697
* 1,006

6
1
33
7
37
49
5
2
4
8
16
86
3
13
44
87
27
15
51
20
12
64
21
31
25
32
59
28
70
47
52
46
69
77
50
26
55
22
80
29
24
71
84
43
62
36
10
67
65
78
66
92
1
1
23
89
9
42
79
30
57
73
58
54
90
35
94

«$42,774
2,893
1 728
5,701
9530
2,302
•128
111,059
9597
8631
»506
1 522
2
1,633
•1,992
is 327
850
8 1,267
83.301
i*295
8780
»491
i«275
1 283
4
9 145
8460
9141
i<350
7347
9292
9 161
1 200
4
1,032
9238
1 307
7
8527
8587
u 137
h 230
1 53
8
8400
9184
8204
1 292
9
8438
14178
1,158
20
1,400
81.327
92 81
1
81.081
8371
8736
8407
*178
9102
1,717
2 50
2
1 52
4
8324
“ 52
1 74
4
8218
8 142
1 89
4
513
184

3
19
1
23
4
64
13
21
20
27
25
87
5
37
15
10
2
40
17
28
44
43
60
29
62
34
35
42
59
51
14
45
39
24
22
63
46
73
32
53
50
4
1
30
56
11
92
8
9
69
12
33
18
31
57
65
6
76
75
38
74
71
49
61
67
26
854

« 2, 121.0
593.9
477.9
401.3
336.1
291.2
239.5
236.5
222.2
220.4
190.5
184.5
8179.3
160.5
155.6
8138.0
8131.2
8 129.0
124.5
8119.7
106.3
106.2
98.2
93.6
86.1
84.9
83.3
79.0
76.9
75.6
74.8
73.5
71.8
68.4
866.2
864.6
62.0
61.9
59.9
857.2
55.5
55.1
49.9
849.8
48.9
848.7
45.0
1 a 44. 0
9
843.5
41.7
840.2
830.3
830.0
30.0
29.8
29.1
28.6
28.4
26.7
23.0
20.3
19.8
17.7
16.3
15.8
i» 15.1
8 14.9

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66

6.250
1,400
1,879
5,052
1,052

14
72
48
18
93

195
899
225
78
1 88
3

52
66
48
70
68

14.6
12.6
12.6
12.4
11.9

67
68
69
70
71

94
V.

JOINT ECONOMIC REPORT

BILLIO N AIRE

CORPORATIONS— BUSINESS VERSUS
M ENT, DEC. 31, 1949— Continued

Corporation or political unit

Chase National Bank of the City of New York..
Equitable Life Assurance Society of the United
States..............................................................
Manufacturers Trust Co....................................
Security First National Bank of Los Angeles_
_
Guaranty Trust Co. of New York.....................
First National Bank of Boston...........................
Northwest Bancorporation_______: ..................
First Bank Stock Corp.......................... ............
Continental Illinois National Bank & Trust Co..
Mutual Life Insurance Co. of New York...........
Marine Midland Corp.......................................
Central Hanover Bank & Trust.........................
Bankers Trust Co. (New York)...... ..................
Bank of the Manhattan Co................................
Irving Trust Co................................................
Chemical Bank & Trust C o..............................
First National Bank, Chicago............................
National Bank of Detroit...................................
Mellon National Bank & Trust Co.................
Massachusetts Mutual Life Insurance Co..........
Cleveland Trust Co............................. .............
New England Mutual Life Insurance Co..........
Northwestern Mutual Life Insurance Co...........

Employees8

Revenues *

Assets i

Rank
Amount accord­ Amount
ing
(millions) size to (millions)
of
assets

GOVERN­

Rank
Rank
accord­ Number accord­
ing to
ing to
(thou­ number
size of sands)
of em­
reve­
ployees
nues

4,780

19

69

72

7.8

72

5,269
2,452
1,713
2,731
1,528
1,352
1,222
2,553
2,075
1,186
1,592
1,624
1,232
1,187
1,593
2,461
1,366
1,424
1,313
1,120
1,083
2,443

17
40
53
34
63
75
82
38
45
85
61
56
81
83
60
39
74
68
76
88
91
41

836
43
10
45
28
31
»26
36
229
27
24
30
24
22
25
239
21
29
183
24
174
340

16
78
93
77
83
80
85
79
47
84
88
81
87
90
86
94
91
82
55
89
58
36

87.3
4.6
4.1
3.9
3.8
3.7
3.4
3.0
2.9
2.9
2.5
2.4
2.4
2.2
2.2
2.1
2.1
2.1
2.0
2.0
241.9
1.4

73
74
75
76
7T
7879~

80
81
82*
83
84
85
86
87'
88
89
90
91
92*
93
94

1Assets for States and municipalities represent total assessed valuation.
2 Revenues for all types of organizations are based on gross revenues with the exception of corporations^
which are based on net sales.
3 City and State employees are those employed during October 1949; city employees represent public
employees exclusive of school employees; District of Columbia figures include Federal employees; State*
employees represent State and local government employees.
4As of June 30,1949. Excludes valuation of Federal real estate since recent figures are unavailable. From
Moody’s Banks and Finance; Governments and Municipals, New York; Moody's Service, 1950; and U. S_
Treasury Bulletin, April 1950.
•As of June 30, i949. From U. S. Budget for 1950.
•As of Dec. 31,1949. From Bureau of the Census.
•Mar. 31,1949.
8Dec. 31, 1948.
9June 30,1949.
1 Dec. 31,1947.
0
n May 31,1949.
« Aug. 31,1949.
1 1949-50.
3
i« June 30,1948.
iJ June 30,1947.
ic Dec. 81,1946.
1 Sept. 30,1948.
7
is Mar. 1, 1947.
18 Dec. 31, 1945.
*
» Jan. 31,1950.
1 a Covers a 2-year period to June 30, 1948.
9
2 Oct. 1,1948.
0
2 Includes State tax collections only.
1
2 Includes revenue from power system only.
2
2 Net earnings.
3
2 Aug. 1,1949.
4
Sources: Moody's Industrials: Public Utilities; Steam Railroads, New York: Moodj’s Investors Service,.
1919. Moody’s Banks and Finance; Governments and Municipals, New York: Moody’s Investors Service,.
1950. The Municipal Year Book, Chicago: The International City Managers’ Association, 1949, p. 147.
The Spectator Insurance Yearbook. 1949-50, New York: the Spectator, 1949, p. 175. U. S. Bureau of the
Census. State Distribution of Public Employment in 1949, April 1950. U. S. Federal Power Commission.
Directory of Electric and Gas Utilities in the United States, 1948, Washington, D. C., 1948.
N o t e .—Comparisons on the basis of assets should be made with extreme caution. The figure representing
asssts of the U.S. Government is an evaluation only of the property physically held by it with no allowance
possible for genuine market valuation except on the basis of outlays and costs (less depreciation plus addi­
tions and betterments) for such items as roads, structures, etc. Actual total wealth of the United States,
representing to some extent the Federal tax base, was estimated on Dec. 31, 1949, at $684,245,000,000. On
the other hand, the assets reported for cities and States represent total assessed valuation of real and per­
sonal property. Distortions here are manifold, depending on whether personal property is assessed in
whole, in part, or not at all; whether the ratio of assessed value to actual, market, or long-run value if 100
percent or some fraction varying in each jurisdiction; depending on differences in exemptions, etc. Even
the comparison of assets and revenues of private corporations may be vitiated by differences in accounting
methods, wide divergences between book value and market value of properties, etc.




95

JOINT ECONOMIC REPORT

VI. FE D E R A L CASH PA Y M E N T S
Federal cash payments to the public, by type of recipient and transaction (fiscal
years 1949-61)
[In billions]
Payment
Direct cash payments for goods and services:
Payments to individuals for services rendered:
Military1
................. ............................................................
Civilian wages and salaries (excluding post office):*
Defense............................................................................
Other Federal..................................................................
Grants-in-aid and loans for performance of specified
services, net *........ ................................................ ......

1949
actual

1950
estimate

1951
estimate

$3.8

$4.1

$3.9

2.4
2.5

2.3
2.6

2.2
2.6

.7

.9

1.3

Total..........................................................................

9.4

9.9

10.0

Payments to business for goods and services:
Public works:
Defense............................................................................
Other Federal.................................................................
Grants-in-aid and loans for public works *......................
Other goods and services:
Defense..................................................................... .
Civilian«..........................................................................

.2
1.3
.4

.3
1.9
.7

.2
2.3
.9

5.1
.8

5.1
1.2

5.8
1.7

Total.............................................................................

7.8

9.2

10.9

Payments to foreign countries and international institutions..

1.1

1.1

1.2

Loans and transfer payments to individuals:
Social insurance and public assistance:
Federal employees’ retirement benefit payments.................
Old-age and disability benefit payments...............................
Unemployment insurance benefit payments........................
Grants-in-aid for public assistance........................................
Readjustment benefits, pensions and other payments to
veterans ®
..................................................................................
Loans to home owners, net..........................................................
Interest7
______________________________________________
Other_________________________________________________

.2
.9
1.3
.9

.3
1.0
2.0
1.1

.3
2.6
1.6
1.4

5.4
- .1
1.2
.4

7.7
-.2
1.6
.4

5.6
- .1
1.5
.5

Total____________ _________ _____________ __ _____ ____

10.2

13.9

13.4

1.6

1.5

.9

.6

.7

.8

.4
.1

.9
.2

1.0
.2

Loans, investments, subsidies, and other transfers to business and
agriculture:
Farmers:
Price support, net (including supply programs)....................
International Wheat Agreement_______________________
Other loans and direct subsidies to farmers8
........................
Business:
Home mortgage purchases from financial institutions...........
Loans, net..............................................................................
Direct subsidy payments...... ...............................................
Subsidy arising from postal deficit..............................................
Interest7
___________ ___________________ - ______________
Total.........................................................................................

(9
)

.5
2.7
5.9

.1

<)
*

.6
2.6
6.6

.1

(•
)

.2
2.6
5.8

1Excludes terminal-leave pay and food and clothing allowances which are primarily paid in kind. In­
cludes family allowances and reserve pay.
* Excludes payroll deductions for Federal employees' retirement.
* Includes all grants-in-aid and loans to public bodies for purposes other than public works and public
assistance. Includes one-third of expenditures for veterans’ tuition, books, and supplies.
* Excludes Rural Electrification Administration loans which are not made to State and local governments
but primarily to private cooperatives.
#Equals the excess of total cash payments to the public over all items shown separately. Includes pri­
marily purchases of goods and services.
8 Includes cashing of terminal-leave bonds, mustering-out pay, national service life insurance and Govern­
ment life insurance refunds and benefits, and veterans’ pensions and readjustment benefits (excluding
two-thirds of veterans’ tuition, books, and supplies).
7Includes a small amount of interest on tax refunds in addition to interest on the public debt. Interest
payments to individuals includes about $100,000,000 of interest payments to State and local governments in
each year.
•Includes Rural Electrification Administration loans.
•Less than $50,000,000.




96

JOINT ECONOMIC KEPORT

Federal cash payments to the public, by type of recipient and transaction (fiscal
years 1 9 49 -5 1) — Continued
[In billions]
Payment

1949
actual

1950
estimate

1951
estimate

Loans and transfer payments to foreign countries and international
institutions:
European recovery program loans and grants________________
Other loans (net withdrawals)____________________ ____
Other grants 1 __________________________________________
3
Subscriptions to the International Bank and Monetary Fund w
.
8
Total..........................................................................................

1 4.0
0
—. i
2.3
.1
6.3

6.0

4.5

Clearing account and adjustment to daily Treasury StatementTotal Federal cash payments to the public________________

-.1
40.6

-.2
' 46.5

45.8

14.1
1 .1
1.6
.2

1 3.2
2

«

i.i
.2

1 It is estimated that approximately 40 percent of this amount is for purchase of food and agricultural
0
commodities from the United States, and 20 percent for industrial commodities from the United States.
1 It is estimated that approximately 40 percent of this amount is for purchase of food and agricultural
1
commodities from the United States, and 33 percent for industrial commodities from the United States.
1 It is estimated that approximately 33 percent of this amount is for purchase of food and agricultural
2
commodities from the United States, and 33 percent for industrial commodities from the United States.
1 It is estimated that roughly half of these expenditures is for purchase of food and agricultural commodi­
3
ties from the United States, and less than half for purchase of industrial commodities from the United
Btatos.
1 Cash withdrawals.
4
Source: U. S. Bureau of the Budget, Mar. 22,1950.

VII. MAJOR FED ER AL LOAN PROGRAM S
Statu s

of

M a jo r F e d e r a l L o an , L oan G u a r a n t y
P rograms

and

L oan I n surance

The attached tables summarize the status of 15 major Federal loan, loan
guaranty, and loan insurance programs as of December 31, 1949, and additional
authority available at the discretion of the President. The tables exclude pro­
grams in liquidation and other programs with no continuing lending authority;
the most important of these are the Treasury loan to the United Kingdom and the
Home Owners’ Loan Corporation. Because of the sizable available authority, the
industrial loan program of the Federal Reserve banks is listed, even though it has
been largely inactive in recent years. Sales credits, e. g., surplus property sales
credits, are excluded.
Status on December 81 , 1949 (table 1)
Over-all limitation (columns 1, 2, 3, and 4): For 12 of the 15 major agencies,
loans, loan guaranties, and loan insurance are covered by specific limitations.
These limitations totaled 33.1 billion dollars on December 31, 1949, including
amounts available during fiscal year 1950. In the case of the Federal Land banks,
Federal Home Loan banks, and Veterans’ Administration, there are no specific
limitations.
The over-all limitations on loans, guaranties, and insurance are of two major
types, depending on whether repayments are or are not available for relending.
In the case of the revolving type of limitation, the amount shown in the table is
ordinarily one or a combination of two of the following: (a) The maximum out­
standing amount of loans, guaranties, and insurance permitted by statute;
(b) the cumulative amounts appropriated into a revolving fund; or (c) the capital,
surplus, and authorized borrowing authority. In the case of the nonrevolving
type of gross limitation the amounts shown are the total authorizations still
available plus outstanding loans and commitments. The net commitment au­
thority is the gross commitment authority of both types minus the amount not
available for loans (e. g., the amount already invested in nonlending assets, such as
commodity inventories or legal reserves against deposits).




JOINT ECONOMIC REPORT

97

Outstanding loans and commitments (columns 5 and 6) .— Outstanding loans
(10 billion dollars) and commitments to lend (2.4 billion dollars) of the 15 programs
amounted to 12.4 billion dollars on December 31, 1949. These include all direct
loans on which the principal has been disbursed and all undisbursed commitments
on such loans; they exclude accrued interest.
Guaranties and insurance ( columns 7 and 8 ).— Outstanding Federal guaranties
and insurance of private loans (15 billion dollars) together with commitments
(2.7 billion dollars) were 17.7 billion dollars on December 31, 1949. In such
guaranties or insurance the Federal agency contracts to take over loans made by
other lenders or to pay a specified amount to the original lender in case of loss.
Commitments to guarantee or insure represent guaranties and insurance approved
but not yet in force. In cases where only a portion of the loan is guaranteed or
insured (e. g., FHA, title I; VA; and RFC) the total credit extended by the
lender exceeds the aggregate Federal guarantie or insurance liability.
Uncommitted authority (<
column 9 ).— The uncommitted authority on December
31, 1949, of the 12 major agencies with specific limitations was 9 billion dollars;
of this 2.9 billion dollars was FHA mortgage insurance authority. It also included
all amounts still available for obligation in the fiscal year 1950.
Additions to commitment authority subject to Presidential discretion (itable 2)
An additional $550,000,000 in commitment authority was available on December
31, 1949, subject to approval by the President (of this amount, he subsequently
released additional FHA insurance authority of $300,000,000 for title VI (non­
revolving type). This discretion was available for the war housing mortgage
insurance program of the Federal Housing Administration and for the slum
clearance and urban redevelopment program administered by the Housing and
Home Finance Administrator. In the case of the slum clearance and urban
redevelopment loans, for which $250,000,000 discretionary authority remained,
the President may increase the limit only upon his determination that such action
is in the public interest “ after receiving advice from the Council of Economic
Advisers as to the general effect of such increase upon conditions in the building
industry and upon the national economy.”




98

JOINT ECONOMIC REPORT

T a b l e 1.— Status of major Federal loan, loan-guaranty and loan-insurance programs
Dec. 81, 1949
[In millions of dollars!
Over-all limitations
Gross com­
mitted author­
ity

Net
Not
com­
avail­ mitted Out­
able author­ stand­
ing
for
Nonity
Revolv­ revolv- loans (1+2-3)
ing
ing
(3)
(4)
(1)
(5)
(2)

Subtotal, agencies
with specific lim­
itations__________ 25,319
Subtotal, other agen­
c ie s ..........____
Total..................

10,756

12

490

302

1,374

483

(6)

(7)

188

919

2,862

962

199

767

683

514

20

12

2,243

1,301

566

1,150
3,500
•278

*

853
2,086
2

431
2

<
*)
934
137
376
«7
100
3

(j)
(*)
(’)

290
883
271

40
953

40

14,622

9,210

2,540

2,870

(*)

285

45

221

949

4,380
(8
)
2,953

433

1,500

1,878

1,134

157
•4,534

1,211
(8
)

33,122

8,666

2,399

10,477 • 2,540

1,352

4

4,534

192

10,018

2,401

15,011

2,732

(*)

(«)

192"

i Capital, surplus, and borrowing authority.
* Not available.
* No specific limit.
<Derived from agency's estimate of uncommitted authority.
» Total authorizations (including $150,000,000 on call by Secretary of Agriculture) less repayments.
* Guarantee of curreacy convertibility only.
7Total authorizations less repayments.
* Outstanding loans made prior to June 30, 1947.
9 Does not allow for partial amortization of ourstanding loans.
Source: U. S. Bureau of the Budget.




(9)

891

(*
)
1,988

(8)

3 3

Department of Agricul­
ture:
Farm Credit Adminis­
tration:
Banks for Coopera­
tives...................
i 502
Federal Intermedi
V ate Credit hanks. U,374
F ed era l lan d
banks..................
(*
)
Commodity
Credit
Corporation.............. 14,850
Farmers Home Ad­
ministration_______
583
100
Rural Electrification
►
'Administration____
#2,243
E con om ic Cooperation
Administration________ 1,150
Export-Import Bank_____ 3,500
Federal Reserve Banks---278
Housing and Home Fi­
nance Agency:
Office of the Adminis­
trator._______ _____
40
Federal Housing Ad­
ministration_______ 8,475 77,100
Federal Home Loan
banks_____________
(>)
Public Housing Ad­
ministration............. 1,500
Reconstruction Finance
Corporation.... ............... 3,550
8830
Veterans8Administration..
(«)

Com­
Out­
mit­ stand­
ing
ments

Un­
com­
mitted
author­
Com­
ity
mit­
ments W

3 3

Agency

Guaranties and
insurance

Loans

9,040

99

JOINT ECONOMIC REPORT

T a b l e 2 . — Additional loan and loan insurance authority, subject to presidential

discretion (Dec. 31, 1949)
[In millions of dollars]
Over-all limitation
Gross commitment
authority

Agency

Revolving
Housing and Home Finance Agency:
Office of the Administrator______________
. Federal Housing Administration.________
Total______________________________

Nonrevolving

250
250

commit­
Not available Netment
for loans
authority

300

250
300

300

550

Source.—U. S. Bureau of the Budget.

V III. RECOM M E N D ATIO N S OF SUBCOM M ITTEES OF THE JOINT
C O M M IT T E E ON THE ECONOM IC R EPORT
S u b c o m m it t e e o n M o n e t a r y , C r e d it , a n d F is c a l P o l ic ie s
I . THE ROLE OF MONETARY, CREDIT, AND FISCAL POLICIES IN ACHIEVING THE
PURPOSES OF THE EMPLOYMENT ACT

We recommend not only that appropriate, vigorous, and coordinated monetary,
credit, and fiscal policies be employed to promote the purposes of the Employment
Act, but also that such policies constitute the Government’s primary and principal
method of promoting those purposes.
II. FEDERAL FISCAL POLICIES

1. We recommend that Federal fiscal policies be such as not only to avoid
aggravating economic instability but also to make a positive and important con­
tribution to stabilization, at the same time promoting equity and incentives in
taxation and economy in expenditures. A policy based on the principle of an
annually balanced budget regardless of fluctuations in the national income does
not meet these tests; for, if actually followed, it would require drastic increases
o f tax rates or drastic reductions of Government expenditures during periods of
deflation and unemployment, thereby aggravating the decline, and marked reduc­
tions of tax rates or increases of expenditures during periods of inflationary boom,
thereby accentuating the inflation. A policy that will contribute to stability
must produce a surplus of revenues over expenditures in periods of high prosperity
and comparatively full employment and a surplus of expenditures over revenues
in periods of deflation and abnormally high unemployment. Such a policy must*
however, be based on a recognition that there are limits to the effectiveness of
fiscal policy because economic forecasting is highly imperfect at present and tax
and expenditure policies under present procedures are very inflexible.
2. We recommend that the Joint Committee on the Economic Report make an
intensive study of the various possible methods of increasing the flexibility of tax
and expenditure policies in order to discover whether and to what extent it is
feasible to make these instruments more effective for stabilization purposes.




100

JOINT ECONOMIC REPORT
III. MONETARY AND DEBT-MANAGEMENT POLICIES 1

1. We recommend that an appropriate, flexible, and vigorous monetary policy,
employed in coordination with fiscal and other policies, should be one of the
principal methods used to achieve the purposes of the Employment Act. Timely
flexibility toward easy credit at some times and credit restriction at other times is
an essential characteristic of a monetary policy that will promote economic stabil­
ity rather than instability. The vigorous use of a restrictive monetary policy
as an anti-inflation measure has been inhibited since the war by considerations
relating to holding down the yields and supporting the prices of United States
Government securities. As a long-run matter, we favor interest rates as low as
they can be without inducing inflation, for low interest rates stimulate capital
investment. But we believe that the advantages of avoiding inflation are so
great and that a restrictive monetary policy can contribute so much to this end
that the freedom of the Federal Reserve to restrict credit and raise interest rates
for general stabilization purposes should be restored even if the cost should prove
to be a significant increase in service charges on the Federal debt and a greater
inconvenience to the Treasury in its sale of securities for new financing and re­
funding purposes.
2. We recommend as means of promoting monetary and debt-management
policies that will contribute most to the purposes of the Employment Act:
(a) That every effort be made to build up the quality and prestige of Federal
Reserve officials; among these measures should be a reduction in the number of
members of the Board of Governors from seven to not more than five and an in­
crease in their compensation.
( b) That Congress by joint resolution issue general instructions to the Federal
Reserve and the Treasury regarding the objectives of monetary and debt-management policies and the division of authority over those policies. These instructions
need not, and in our judgment should not, be detailed: they should accomplish
their purpose if they provide, in effect, that, (i) in determining and administering
policies relative to money, credit, and management of the Federal debt, the
Treasury and the Federal Reserve shall be guided primarily by considerations
relating to their effects on employment, production, purchasing power, and price
levels, and such policies shall be consistent with and shall promote the purposes of
the Employment Act of 1946; and (ii) it is the will of Congress that the primary
power and responsibility for regulating the supply, availability, and cost of credit
in general shall be vested in the duly constituted authorities of the Federal Reserve
System, and that Treasury actions relative to money, credit, and transactions in
the Federal debt shall be made consistent iwth the policies of the Federal Reserve.
(c) That the Secretary of the Treasury and the Chairman of the Board of
Governors of the Federal Reserve System be made members of the National
Monetary and Credit Council recommended elsewhere in this report.
IV. RESERVE REQUIREMENTS OP COMMERCIAL BANKS

2

1. We recommend that all banks which accept demand deposits, including
both member and nonmember banks, be made subject to the same set of reserve
requirements and that all such banks be given access to loans at the Federal
Reserve banks.
2. Without endorsing any particular plan, we recommend that serious considera­
tion be given to the Federal Reserve proposal that the present system of memberbank reserve requirements based partly on the size of the city in which a bank is
1Mr. Patman believes that these proposals do not make the Federal Reserve System sufficiently respon­
sible to the executive department of the Federal Government. In creating money and regulating the
supply and cost of money and credit, the Federal Reserve is performing a governmental function: it even
issues Federal Reserve notes which become obligations of the United States. Moreover, it is now possible
for the Federal Reserve to follow policies that would conflict with, and perhaps defeat, the Government’s
economic program. He believes, therefore, that steps should be taken to increase the responsibility of the
Federal Reserve System to the executive department. Though he favors, as proposed in this report, the
establishment of a Monetary and Credit Council to be headed by the Chairman of the Council of Eco­
nomic Advisers, he does not believe that it will make the Federal Reserve sufficiently responsible to the
Executive.
2Mr. Wolcott dissents from this recommendation. It is his opinion that the so-called dual banking
system should be preserved in order that possible checks and balances may be maintained to prevent unwise
concentration of credit and economic controls. He contends that any such centralization of banking au­
thority might well be interpreted as a step toward the nationalisation of all banking and credit. That,
instead, there should be full cooperation between the State banking authorities and the Federal Reserve
Bo^rd to remove any discriminations which might seem to give advantage or disadvantage to either the
Federal or State systems.




JOINT ECONOMIC REPORT

101

located be replaced by a new system of requirements that would be geographi­
cally uniform but that might require different percentages of reserves against
different types of deposits.
V. FEDERAL CHARTERING, SUPERVISION, AND EXAMINATION OF COMMERCIAL BANKS

We recommend a thorough and complete study of the broad question of Federal
chartering, supervision, and examination of commercial banks, including not only
the organization and coordination of the Federal agencies performing these func­
tions but also the substance and applicability of the relevant Federal laws and
regulations.
VI. MONETARY POLICY RELATIVE TO SILVER

We recommend that the United States Government cease buying silver for
monetary purposes.
VII. THE RESTORATION OF A GOLD-COIN STANDARD IN THE UNITED STATES

We believe that to restore the free domestic convertibility of money into gold
coin or gold bullion at this time would militate against, rather than promote, the
purposes of the Employment Act, and we recommend that no action in this direc­
tion be taken. We also recommend a thorough congressional review of existing
legislation relating to the power to change the price of gold with a view to repealing
any legislation that might be so construed as to permit a change in the price of
gold by other than congressional action.
VIII. DEPOSIT INSURANCE

We recommend that Congress, while considering questions relating to the base
and rate for deposit-insurance premiums, also study thoroughly the advantages
and disadvantages of increasing the coverage of deposit insurance for the primary
purpose of protecting the economy against the adverse deflationary pressures
that would accompany cash withdrawals from the banking system during any
depression period that may occur, and that no changes in deposit-insurance
premiums be made until after the completion of the study.
IX . OTHER FEDERAL CREDIT AGENCIES

1. We recommend that Congress review the programs and policies of the various
Federal credit agencies to find out to what extent if at all they can be made to
contribute more to the purposes of the Employment Act without an undue
sacrifice of the substantive programs to which they are related.
2. We recommend that the head official of each of the most important agencies
in this group be included on the National Monetary and Credit Council, which
we recommend elsewhere in this report.
X . A NATIONAL MONETARY AND CREDIT COUNCIL 8

We recommend the creation of a National Monetary and Credit Council which
would include the Secretary of the Treasury, the Chairman of the Board of
Governors of the Federal Reserve System, the Comptroller of the Currency, the
Chairman of the Federal Deposit Insurance Corporation, and the heads of the
other principal Federal agencies that lend and guarantee loans. This Council
should be established by legislative action, should be required to make periodic
reports to Congress, and should be headed by the Chairman of the Council of
Economic Advisers. Its purpose should be purely consultative and advisory,
and it should not have directive power over its members.
X I. A COMPREHENSIVE STUDY OF MONEY AND CREDIT

1.
We recommend that the Joint Committee on the Economic Report, as well
as the Banking and Currency Committees of the Senate and of the House of
Representatives, continue a thorough and complete study of the monetary and
credit systems and policies of the United States, and that they be provided with
funds adequate for the purpose.
* Mr. Wolcott joins in recommending the creation of a National Monetary and Credit Council, but dis­
agrees with the recommendation that it should be headed by the Chairman of the Council of Economic
Advisers. In his opinion, this would concentrate too much power in the Executive over the volume and
cost of credit. He recommends, instead, that the Chairman of the Credit Council be a person of neutral
interests removed as much as possible from the direct influence of either the Executive or the Federal Reserve
Board. He also agrees that periodic reports should be made to Congress by the Council.




102

JOINT ECONOMIC REPORT

2.
We recommend that S. 1559, which would provide for the establishment o f
a National Monetary Commission, be not enacted.
XII. A CONTINUING STUDY OF FISCAL POLICY BY THE JOINT COMMITTEE ON THE
ECONOMIC REPORT

We recommend that the joint committee, while carrying out its general duties
“ to make a continuing study of matters relating to the Economic Report” and
“ to study means of coordinating programs in order to further the policy of the
(Employment) Act,” make a special intensive study of the various possible methods
of increasing the flexibility of Federal tax and expenditure policies in order to
discover how and to what extent it may be feasible to make these instruments
more effective for stabilization purposes.
XIII. EARNINGS OF THE FEDERAL RESERVE IN EXCESS OF DIVIDEND REQUIREMENTS

We recommend that Congress enact a franchise tax on the net earnings of the
Federal Reserve System to replace the voluntary contributions now being made
to the Treasury by the Board of Governors. In view of recommendation III,
2, any franchise tax must take into account the necessity for an ample reserve for
losses in open-market operations as compared with the present situation in which
earnings are automatic.
S u b c o m m it t e e o n I n v e s t m e n t
i

The subcommittee recommends prompt action on the part of Government to
provide aids or supplemental channels for capital loans and equity capital to small
enterprise. These measures might take any one of several forms but the sub­
committee feels that the present facilities for making this type of funds available
to small business are inadequate.
The alternatives suggested to the subcommittee included:
(а) Creation within the present banking system of specialized capital
institutions empowered to make long-term loans or purchase the securities o f
small-and medium-size firms. Some type of tax incentive may prove to be
efficient inducement.
(б) Government sponsorship of a system for spreading business risks
through contributions to what might be called an insurance reserve fund
covering business loans and/or business equities under appropriate safeguards.
(c) The cooperation of existing institutions reexamining their traditional
policies in the light of contemporary needs and circumstances.
(d) Amendment of the Reconstruction Finance Act to permit more effective
aid in dealing with the specific problems of small business.
(e) Establishment under governmental supervision of a system of coopera­
tives to supply small-business capital needs.
The subcommittee recommends that these alternatives, particularly the
apparent need for specialized institutions, be given congressional study at the
earliest possible opportunity.
n
The subcommittee recommends an early systematic review of present tax laws
with special emphasis on their impact on small business and on the availability of
equity capital generally. The present tax system was largely devised to meet the
special fiscal needs of depression and wartime. Our objective now should be for
a tax system geared to increased production, to development and stabilization
of little and local business and the encouragement of equity financing.
Specific tax provisions which the subcommittee believes should be included in
such a general review of tax matters are illustrated by the following. The sub­
committee, basing its judgment upon the limited evidence before it, recommends:
(a) That the special tax advantages of small corporations be clarified and
redesigned to increase benefits to the very small and to extend them to
intermediate-size corporations.
(b) That added flexibility be permitted administratively, and if need be
legislatively, in the rate at which businesses are allowed to write off physical
assets for income-tax purposes.
(c) A thorough and complete study of the application and effect, real and
feared, of section 102 of the Internal Revenue Code dealing with unreasonable
accumulation of corporate profits.




JOINT ECONOMIC REPORT

103

(d) That provisions for the carrying forward of net losses be liberalized.
(e) That venture capital corporations be treated as investment companies
for tax purposes.
(/) That steps be taken to mitigate the liquidation problems of familyowned businesses in the event of death of the principal family stockholder,
by, for example, exempting from estate taxes the insurance proceeds of
policies specifically taken out to pay such taxes.
While the question of so-called double taxation of dividends was frequently
mentioned the subcommittee feels unprepared to make a recommendation on this
issue without further study of the incidence and burden of taxation. The oppor­
tunities which tax-exempt securities afford for tax avoidance and shifting would
be an important part of such a study. The subcommittee accordingly recom­
mends a thoroughgoing study of the question of who actually pays the taxes
under existing and prospective conditions.
S u b c o m m it t e e

on

U nem ploym en t

1. The subcommittee recommends that study be given immediately toj the
problem of providing, on a regular basis, regional and area information on the
volume of total unemployment.
2. Convinced of the wisdom of advanced planning of public works as a pre­
cautionary measure against serious economic downturn, the subcommittee
recommends that special study should be given to the problem of developing
useful projects for nonconstruction workers.
3. In order to promote continued economic growth the subcommittee recom­
mends that serious attention be given the possibility of further study in the field
of regional development.
S u b c o m m it t e e

on

L o w - I n co m e F a m il ie s

I. LOW-INCOME FAMILIES AND THE NATIONAL ECONOMY

1. ;We recommend that local communities, private business and professional
groups, and Federal, State, and local governments take all appropriate action to
provide opportunities for low-income families to become full partners in prosper­
ous American communities. Concerted action is required to provide employ­
ment opportunities for the aged at tasks within their powers, to help the disabled
regain their productive place in society, to develop new industries and employ­
ment opportunities in backward regions of the country, to give the unskilled
worker a chance to improve his income and his status, and to provide opportuni­
ties for the children of low-income families to develop their capacities by suitable
education.
2. We recommend that the Council of Economic Advisers, the Departments of
Agriculture, Commerce, and Labor, the Joint Committee on the Economic Report
and other Government agencies continue to study the relationship between the
distribution of income and the stability and progress of the economy as a whole.
Our investigation has indicated that the low-income group constitutes a large
underdeveloped productive resource and a large potential market. Further re­
search is needed to define the size and the importance to the whole economy of
this reservoir of human resources.
1. Rural low-income families

1. We recommend a thorough investigation of the effect of the Federal farm
price-support programs on farm families in the different income groups, with the
purpose of determining how such programs might be designed to make a greater
contribution to the welfare of low-income farmers.
2. We recommend that sufficient funds, in an amount consistent with sound
economic policy, be provided for supervised farm purchase loans and supervised
production loans by the Farmers Home Administration of the Department of
Agriculture, to enable competent low-income farmers to acquire and operate
sufficiently large holdings, and to make the change from the one-crop system to
diversified farming.
3. We recommend that comprehensive studies of the reasons for regional rural
poverty be inaugurated by the Bureau of Agricultural Economics, and by other
interested research groups, and that coordinate studies of the possibilities of area
development of economically lagging regions be undertaken by the appropriate
public and private agencies, with the purpose of fostering part-time farming sup­
plemented by industrial employment. In this connection, we recommend that




104

JOINT ECONOMIC REPORT

the procurement policy of the Federal Government be designed as far as possible
to encourage development of new private industries in such areas. We also
recommend that in regions where supplemental employment opportunities cannot
be established, and where improvement of farming methods will not suffice to
raise the level of living of low-income farm families, suitable means be found to
help such families move to areas of better opportunity. We believe that such
programs should contain safeguards against the danger that migrating low-income
farmers may become unskilled or casual workers, entirely dependent upon inter­
mittent cash wages.
4. We recommend that educational opportunities for children of rural lowincome families be enlarged and improved. We believe that better access to
traditional kinds of education must be provided for these children, but we would
emphasize the need for a more practical kind of guidance and training which will
help them to make the best use of their own resources and opportunities, in their
own communities or elsewhere.
5. We recommend that the appropriate legislative committees devote special
attention to the problem of adapting social-welfare legislation to meet the needs
of hired farm workers. In particular, we recommend that a thorough study be
made of the present numbers and problems of migrant farm labor families.
The unskilled

1. The unfavorable bargaining position of the unskilled is sometimes an im­
portant cause of low incomes among this group. We suggest that the respective
States could profitably consider action to establish minimum wages in industries
not covered by Federal statute.
2. We recommend that a thorough study be made of existing systems of voca­
tional training and practical education with the purpose of determining improve­
ments which will help children to obtain the kind of guidance and training they
need to realize and develop their aptitudes and skills.
3. We recommend provision of Federal financial assistance to the States for
education through the high-school level in order to help equalize educational
opportunity throughout the Nation.
4. We recommend the establishment of a national scholarship fund for the
higher education of students of demonstrated ability but limited means.
S. Children of low-income families

1. We recommend revision of the aid to dependent children section of the
Social Security Act of 1935 to provide funds which will more nearly meet the needs
of broken families, and to liberalize present eligibility requirements to permit
assistance to children in families where the income of the chief earner is insuffi­
cient to provide adequate care.
2. We recommend the expansion and improvement of health services and medi­
cal care for children of school age.
3. We recommend the provision of sufficient funds to enable the national schoollunch program to serve all schools which now meet the requirements as stated in
the law, and which have applied for participation in the program.
4. We recommend that funds be provided for an expanded program of research
in the problems of child welfare.
4 . The disabled

1. We recommend
expanded program of
2. We recommend
against the hazard of

that sufficient funds be appropriated to provide for an
rehabilitating physically handicapped persons.
the enactment of legislation to provide social insurance
permanent and total disability.

5 . The aged

1. We recommend that the Joint Committee on the Economic Report request
the appropriate Government agencies to study the incidence and extent of existing
restriction on employment of older workers in Government and industry, and
report to the committee their findings with regard to ways in which these barriers
may be removed and older workers encouraged to remain in productive employ­
ment.
2. We recommend that the old-age and survivors insurance system established
by the Social Security Act be revised to provide universal coverage, increased
benefits, modification of the retirement test to permit beneficiaries to supple­
ment their pensions by earnings, less strict eligibility requirements to permit
larger participation in the program, and adoption of the pay-as-you-go system of




105

JOINT ECONOMIC REPORT

financing with the establishment of suitable contingency reserves, adjusting the
current tax rate to the current rate of disbursement.
3.
We recommend that the Joint Committee on the Economic Report, while
carrying out its general duties “ to make a continuing study of matters relating to
the Economic Report” initiate a special study of the effects on the national econ­
omy of public and private pension programs.
6. Low incomes and health

1. We recommend expansion of the program for the construction of hospitals
and clinical facilities, particularly in low-income areas.
2. We recommend that the Federal Government assist in the training of
doctors and nurses.
3. We recommend that provision be made to assist in the expansion of existing
medical schools and to establish new schools where needed.
4. We recommend that the present program of public health services be
expanded through the cooperation of thg Federal and State Governments.
5. We suggest the development of a comprehensive program, based upon the
voluntary cooperation of public and private agencies, which will permit all
persons who so desire to participate in a system of health insurance.
7. Further study of causes of low incomes
We have found that the existing data on low incomes, while invaluable for the
purposes of the subcommittee, need to be supplemented by further studies. We
therefore recommend that the Joint Committee on the Economic Report continue
its investigation of poverty and dependency with the primary aim of discovering
the root causes of these problems. More information and analysis are needed in
three fields: First, the appraisal of present ameliorative programs with especial
reference to whether or not such programs affect the basic causes of the problems;
second, additional statistical compilations and analysis; third, studies of case
histories of individual low-income or dependent families.
IX . LEGISLATIVE R ECOM M EN D ATION S B Y BUSINESS, FARM , AND
LABOR ORGANIZATIONS *
Abbreviations of organizations:
N A M — National Association of Manufacturers
USCC— United States Chamber of Commerce
CED— Committee for Economic Development
AFBF— American Farm Bureau Federation
NG— National Grange
NFU— National Farmers Union
CIO— Congress of Industrial Organizations
AFL— American Federation of Labor
Explanation of symbols used:
F indicates the organization favors the proposition.
O indicates the organization opposes the proposition.
________ indicates the organization has not taken an official position on
the proposition.
Numerals refer to notes, which follow the list of recommendations.
For sources used, see bibliography at end of table.
NAM USCC

CED

AFBF

NO

NFU

CIO

I. F A AN TAX P L Y
ISC L D
O IC
1. Make payments on the public
debt if employment remains
high............................. ............
F
F
F
F
F
2. Balance the Federal budget for
F
1950-51____ _____ __________
F
F
F
3. Reduce receipts from personal in­
2F
3F
4F
come taxes__________ ____
4. Reduce corporate income-tax re­
F
«F
F
ceipts............ ..........................
F
5. Raise personal income-tax exemp­
tion...........................................
0
0
0
0
O
1In the light of their assumption of an unfavorable economic outlook.f
* Particularly in higher brackets.
* An over-all revenue reduction of 2\i billion dollars.
* Personal income-tax reduction for those in the lower-income brackets.
•As derived from published statements*




i0

i0

<F

4F

F

F

AFL

106

JOINT ECONOMIC REPORT

IX . LEGISLATIVE RECO M M E N D ATIO N S B Y BUSINESS, F A R M , AN D
LABOR ORGANIZATIONS— Continued
CIO

AFL

F
F

F
F
F

F
F

F

8F

F

NAM

USCC

CED

AFBF

NG

«0
of
80

«0
7F
80

o
F
o

F
F

NFU

L F A AN TAX P LIC —CO
ISC L D
O Y
n.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.

Increase estate and gift taxes—
Reduce or repeal excise taxes _
_
Increase capital-gains tax.............
Increase the share of Government
receipts coming from income
taxes___ _________________
Liberalize depreciation allow­
ances
Eliminate double taxation of cor­
porate income______________
Relax the restraints on retaining
fiarnings
Extend the carry-forward period
allowed for losses, in comput­
ing income taxes___ ________
Tax future issues of State and lo­
cal govp.rnm
p.Tit'. bonds
Require Government-owned en­
terprises to make charges equiv­
alent to taxes paid by private
enterprises with which they
compete___________________

(7
)
F
F

F

F

F

•F

F

F

F

wF

F

F

F

F

11

F

F

F

10

f

0

10
3

1 F
8

F

F

n. CR D
E IT
1. Return to international gold
standard___________________
2. Provide private capital banks
3. Extend the maximum maturity
period of RFC loans............. .
4. Increase the regulation of bank
reserves_________ _______
5. Regulate consumer credit____
6. Provide agricultural credit, un­
der Government supervision

F

F
F
wo

0

1 F
5

0
M0
1 0
4

F

F

III. AG
RICU RE
LTU
1. Adopt Brannan plan (produc­
tion payments)........................
2. Extena Government crop insur­
ance... ......... .......... ................
3. Stimulate consumption of agri­
cultural products___________
4. Use import fees or quotas when­
ever necessary to protect do­
mestic agriculture or pricesupport programs ___ ____

0

0

0

F

F

0

F

F

F

F

F

F

F

F

F

F

F

0

1*0

IV. RESOURCE DEVELOPMENT

1. Extend Federal valley authori­
n o
0
0
F
F
F
0
ties and public power projects -2. Dispose of unneeded Federal
land holdings to private indi­
F
F
viduals.....................................
•It is recommended that these taxes be decreased.
®Present excise taxes should be replaced by a uniform manufacturers' excise tax.
7Excise taxes should continue to be an important revenue source.
8Sales taxes should be eliminated and offset by increased income taxes.
9Including both corporations and cooperatives.
1 Double taxation on the profits of cooperatives should be eliminated.
0
1 Companies must have authority to establish reasonable reserves, deductible for income-tax purposes.
1
1 Enact an undistributed profits tax.
8
1 Farmers and other individuals with fluctuating incomes should be permitted to average their incomes
8
over a period of years.
u USCC opposes Government credit or intervention in the field of credit, asks reduction of Government
lending and guaranteeing.
1 Recommends a general expansion of RFC activity.
5
1 CED has not studied the whole agricultural program but in general CED opposes direct controls and
6
any plan that involves subsidies in a period of high business activity.
valley authorities should be considered as public works, which are not needed now.




107

JOINT ECONOMIC REPORT

IX . LEGISLATIVE R EC OM M EN D ATION S B Y BUSINESS, FARM , A N D
LABOR ORGAN IZATION S— Continued
NAM

USCC

CED

(1)
8

MF

O

0

O

2F
1

2F
1

0

0

0

0

0

0

AFBF

NG

NFU

CIO

AFL

F

F

io F

F

F

F

0

20 0

F
F

F
F

F
F

F
F

V . WELFARE

1. Extend and liberalize social se­
curity_____________________
2. Subsidize middle-income hous­
ing............................................
3. Extend rent control.....................
4. Provide Federal aid for educa­
tion_______________ _______
5. Enact national health insurance..

F
F

VI. INTERNATIONAL

1. Approve ITO Charter................
2. Increase imports, extend the Re­
ciprocal Trade Agreements
Act_______________________
3. Encourage capital in foreign in­
vestment; provide technical
assistance to undeveloped
countries.^________ _______
4. Continue EC A until 1952............

31

F

F

F

F
F

26 F

F

F

23 F

27 F

22 F

2F
8

F
20 F

24

F

30 F

F

25

F

F

F
F

F
F

F

F

F

F

F

F

F

F

VII. LABOR RELATIONS AND WAGES

1. Repeal Taft-Hartley Act.............
Rule out jurisdictional and sumpathy strikes and secondary
boycotts___________________
3. Increase minimum wages and
the coverage of the wage-hour
law_______________________
4. Rule out the closed shop_______
S. Make union contracts legally
enforceable_____________ -__
6. Make unions subject to the anti­
trust laws__________________

0

2.

F

F

F

O
F

F

F

F
F

F

F

F

F

F

F

F

F

v n i . MONOPOLY

1. Strengthen the anti-trade re­
straint and antimonopoly pro­
gram______________________

0

1 OASI should be limited to providing a minimum layer of basic protection, leaving ample room for
8
individual and voluntary group effort. USCC asks coverage extension,
is Should be extended to farm people on a trial basis,
a The housing problem is primarily an individual responsibility.
®
2 Provided that all control of schools remains with State and local governments.
1
2 Providing articles 11 and 12, dealing with foreign investment, are eliminated.
2
2 Encourage imports of articles required by the economy; but American industry must be protected
3
against unfair competition.
a The Reciprocal Trade Agreements Act should be amended to require analysis by the Tariff Commission
*
and ratification by the Senate.
2 But AFL also advocates a program to induce domestic consumers to prefer American-made products.
5
2 The movement of capital should be carried on by private enterprise; the export of capital should not
«
be stimulated as a device to reduce domestic unemployment.
2 At progressively lower amounts, terminating in 1952; recipient nations should not pursue policies of
7
nationalization.
* At a level for 1950-51 slightly lower than that recommended by the President.
8
2 Greater emphasis should be placed on self-help projects; the program must not be used as a means
®
of dumping United States surpluses.
3 Every effort must be made to terminate ERP in 1952; the program must not be used for dumping
0
U. S. surpluses.
3 For improvement of world economic conditions; there are ample domestic investment opportunities.
1
BIBLIOGRAPHY

NAM : Industry Believes, NAM, N Y , December 1949.
U SCC: Policy Declarations, USCC, Wash., July 1949; Business Action, USCC,
vol. 7, No. 9, May 12, 1950.
AFBF: Resolutions Adopted at 81st Annual Convention AFBF, Chicago, Dec. 1949.
NG: Agricultural Policy and Recommendations Adopted at 88d Annual Session ,
National Grange, Wash., November 1949.
NFU: The National Union Farmer, Denver, Colo., March 1950.
CIO: Proceedings, 11th Annual Convention, CIO, November 1949.
AFL: Proceedings, 68th Annual Convention, AFL, October 1949.
C E D : Tax and Expenditure Policy for 1950 , CED, NY., January 1950. Taxes and
the Budget, CED, NY., November 1947. Meeting the Special Problems of Small
Business , CED, N Y , June 1947. Hearings on the January 1950 Economic



108

JOINT ECONOMIC REPORT

Report of the President, Joint Committee on the Economic Report, January
1950, testimony of Marion B. Folsom, of CED. Agriculture in an Expanding
Economy i
CED, N Y, December 1945. The I TO and Reconstruction of World
Trade, CE2D, NY, June 1949. Extension of the Reciprocal Trade Agreement Act,
CED release to House Ways and Means committee, May 7, 1948. Interna­
tional Trade, Foreign Investment and Domestic Employment, CED, NY, June
1945. Extension of the Economic Cooperation Actt CED statement to Senate
Foreign Relations committee; Feb. 18, 1949. A n American Program of Euro­
pean Economic Cooperation, CED, NY, Feb. 1948. Collective Bargaining,

CED, NY, February 1947.

A

p p e n d ix

B

SUM M ARY OF T H E W O R K OF TH E JOIN T C O M M IT T E E ON THE
ECONOM IC R E P O R T M ARCH 1, 1949-FEBRUARY 28, 1950 *
THE COMMITTEE’ S REPORT ON THE PRESIDENT’ S ECONOMIC REPORT

The report of the Joint Committee on the Economic Report on the January
1949 Economic Report of the President was submitted in the Senate March
1, 1949 and ordered to be printed as Senate Report No. 88. The report contained
the Committee findings as approved by the majority members, a summary
of comments by the round-table groups, a summary of the work of the Joint
Committee on the Economic Report during 1948, and the Joint Committee’s
staff statement on current statistical gaps.
On April 28 the minority views on the President’s 1949 Economic Report were
submitted and published as part 2 of Senate Report No. 88.
SUBCOMMITTEE STUDIES

In an executive meeting on February 28, 1949, the Joint Economic Committee
discussed several subjects which needed special study during the remainder of the
year and plans were made for naming subcommittees to conduct such studies as
the Committee might wish to go into as soon as they had completed work on the
President’s Economic Report.
On March 29, Chairman O’ Mahoney introduced Senate Concurrent Resolution
26 providing for a series of investigations by the Committee on:
(1) The problem of investment, including but not limited to: the role of
investment institutions in the investment markets in industry and in the
economy generally; changes in sources of investment funds and the reason
therefor; availability and character of investment funds for national, local
and independent enterprise and the effect of such investment or lack of
investment on different classes or size groups in industry; and needs, by
industry, for various types of capital.
(2) The problem of the effectiveness and coordination of monetary, credit,
and fiscal policies dealing with general economic policy.
(3) The problem of low-income families in relation to economic instability.
(4) The problem of unemployment trends and their significance in current
economic analysis.
The resolution was agreed to on M ay 24, 1949, and on June 20 and July 3 the
Chairman announced the appointment of the following subcommittees:
Investment Subcommittee.
Senator Joseph C. O’ Mahoney, chairman
Senator Paul H. Douglas
Senator Robert A. Taft
Representative Wright Patman
Representative Christian A. Herter
1 The report of the Joint Committee on the Economic Report on the January 1949 Economic Report
of the President summarized the work of the Committee through December 31,1948. Between that date
and March 1, 1949 the Joint Economic Committee held public hearings to consider the 1949 Economic
Report of the President, with members of the Council of Economic Advisers, Cabinet officers, and heads
of certain of the executive agencies appearing before the Committee to discuss and amplify those segments of
the President’s Economic Report which dealt with problems in their special fields. These hearings were
followed by two round-table meetings where the Committee sought the advice of individual economic and
fiscal experts and representatives of various economic groups in further discussion of the President’s Eco­
nomic Report.
After consideration of the report in public hearings the Committee met on several occasions to review
additional materials prepared by the staff and preliminary drafts of the final report.




JOINT ECONOMIC REPORT

109

Monetary, Credit, and Fiscal Policies Subcommittee:
Senator Paul H. Douglas, chairman
Senator Ralph E. Flanders
Representative Wright Patman
Representative Frank Buchanan
Representative Jesse P. Wolcott
Low-income Families Subcommittee:
Senator John Sparkman, chairman
Senator Ralph E. Flanders
Representative Walter B. Huber
Representative Frank Buchanan
Representative Robert F. Rich
Unemployment Subcommittee:
Representative Edward J. Hart, chairman
Senator Francis J. Myers
Senator Arthur V. Watkins
Representative Walter B. Huber
Representative Christian A. Herter
The Investment Subcommittee held its first hearings on September 27, 28, and
29, when representatives of small and large business and the Brookings Institution
were asked to outline for the committee their views with respect to the problem of
investment of private capital in business and industry. On October 11 the sub­
committee issued as a committee print, materials prepared by the staff entitled
“ Factors Affecting Volume and Stability of Private Investment.” This staff report
covers such aspects of the investment problem as, what happened to private in­
vestment during the 1929 depression; the effect of tax policies upon investment;
the current position of small business; and the relationship of debt capital to equity
capital. Final hearings by the Investment subcommittee began on December 6
with a round-table conference with the Small Business Advisory Committee of the
Department of Commerce to discuss the financial problems of small business. On
December 7,8, and 9, witnesses were heard from a number of insurance companies.
These witnesses were followed by representatives from the investment banking
groups on December 12, 13, 14, 15, and 16. Several labor unions also presented
testimony during the hearings and representatives were heard from the manufac­
turing industries. The final report of the Investment subcommittee was issued
March 20, 1950 as Senate Document No. 149, entitled “ Volume and Stability of
Private Investment.”
The Subcommittee on Monetary, Credit, and Fiscal Policies began its work by
issuing on August 16, 1949, a questionnaire which was directed to economists,
bankers, and representatives of agriculture, labor and industry. Respondents
were asked to comment on such matters as guide posts and objectives of monetary
and credit policies, the function of the Federal Reserve System in relation to the
Government bond market, the division of monetary and credit policies between
the Federal Reserve and the Treasury, needed changes in the Federal Deposit
Insurance Corporation’s powers and policies, etc. The general questionnaire was
followed on August 22 by a series of specific questionnaires sent to the key
Government agencies dealing with the problems under study by the subcommittee.
The subcommittee’s hearings began on September 23 when it met to consider two
reports on fiscal policy which were drawn up and unanimously approved by 14
distinguished university economists in a conference sponsored by the National
Planning Association at the suggestion of the subcommittee (September 16-18).
The reports made recommendations with respect to (1) Federal expenditure and
revenue policy for economic stability, and (2) fiscal policy in the future, and were
presented at the hearings by three representatives of the participating group of
economists. The statements by the economists and replies to the general ques­
tionnaire and the questionnaires directed to individual Government agencies were
published on November 7 as a joint committee print under the title, “ Monetary,
Credit, and Fiscal Policies.” 2 The final hearings of the subcommittee were held
November 16, 17, 18, 22, and 23, and December 1, 2, 3, 5, and 7. Witnesses were
heard from the Government agencies directly concerned, from bankers, and from
representatives of business, farm and labor groups. A final report, Monetary,
Credit and Fiscal Policies, was transmitted to the full committee on January 13,
1950.8
8 The materials were later submitted for publication as a Senate document and printed under the title
“ Compendium of Materials on Monetary, Credit, and Fiscal Policies,” Senate Document No. 132 February
9,1950.
* Published under the same title, on January 23,1950, as Senate Document No. 129.
66696— 50------- 8




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JOINT ECONOMIC REPORT

The Subcommittee on Low-income Families, preparatory to holding hearings
in connection with its final report, issued two studies prepared by the staff with
the cooperation of various Government agencies. The first, which was released
as a committee print on November 13,1950, is entitled “ Low-income Families and
Economic Stability.” It summarizes the latest material on the economic circum­
stances of these families and states in broad terms the questions which require
further investigation. The second study, “ Selected Government Programs Which
Aid the Unemployed and Low-income Families,” was prepared in cooperation with
the staff of the Unemployment Subcommittee and released on November 10. The
topics covered include social insurance and related programs for industrial and
commercial workers; Federal minimum-wage legislation; public assistance pro­
grams, such as old-age assistance and aid to the blind, vocational rehabilitation;
Federal low-income housing programs; and Federal programs for veterans. The
essentials of the different programs are presented in outline, with selected current
statistics. Hearings on the problem of low-income families began December 12,
1949, and continued through December 22. Members of the subcommittee heard
expert testimony from Government and private witnesses on the circumstances
of these families and the relationship of their low production and low purchasing
power to the economy as a whole. Non-Government witnesses who appeared
came largely from the field of public welfare and college research groups dealing
with the subject of low-income families. The subcommittee’s final report, Lowincome Families and Economic Stability, was submitted to the full committee on
February 23, 1950.4
The Subcommittee on Unemployment issued as a committee print, An Initial
Report on Employment and Unemployment, on July 11, 1949. No hearings were
held by the Unemployment Subcommittee since the conditions which prevailed
when Senate Concurrent Resolution 26 was passed had improved by the time
the committee began consideration of its final report to a point where it was felt
hearings held then would not contribute to the subcommittee’s study. The final
report, which was issued on February 3, 1950, as a committee print under the
title of “ Employment and Unemployment,” includes a summary of the activ­
ities of the committee and its findings and recommendations, staff materials on
the status of employment and unemployment, employment trends between 1929
and 1949, employment conditions in five problem industries, discussion of the
concepts used in measuring the labor force and unemployment, and a statement
on the determination of the critical ratio of unemployment to the total labor
force at full employment.5 A second section of the report is based on studies by
the staff of the subcommittee, on materials prepared by various executive agencies,
and on answers received to a questionnaire sent to the Departments of Commerce
and Labor and to leading labor unions.®
OTHER HEARINGS AND REPORTS

Hearings were held January 17, 18, 19, and 20, 1950, in connection with the
committee’s review of the 1950 Economic Report of the President to supplement
the subcommittees’ investigations under Senate Concurrent Resolution 26 made
during the recess. Members of the President’s Council of Economic Advisers
and the Director of the Bureau of the Budget appeared before the committee in
executive session during these hearings. These meetings were followed by two
round-tables, one with non-Government economists and other technicians, and
the second with representatives of business, labor, agriculture, consumer groups*
and State and local governments.
On January 29 a committee print was issued on “ Highways and the Nation’s
Econom y,” which presents materials assembled by the staff of the Joint Economic
Committee in cooperation with the Bureau of Public Roads and includes the
results of a questionnaire inquiry to the governors and highway authorities of all
the States to determine the extent of existing highway deficiencies in the Nation.
The committee held hearings on recent increases in steel prices, January 24
through January 27, at which representatives of a number of steel companies
appeared to discuss their problems in connection with these price increases. The
committee heard at the same time from persons interested in the erection of a
steel plant for New England, with several members of the New England congres­
sional delegation participating in the hearings. Representatives from labor unions
4 Published under the same title on March 9,1950, as Senate Document No. 146.
•Published under the same title on February 22, 1950, as Senate Document No. 140.
•The Subcommittee on Unemployment issued one additional report, “ Handbook of Regional Statistics”
which is described in the discussion of Committee Activities in the Field of Regional Development, in the
latter part of this chapter.




JOINT ECONOMIC REPORT

111

directly concerned with steel and steel products also appeared. A collection of
materials prepared by the staff for use in connection with the hearings was issued
as a committee print on January 23,1950, under the title of “ Basic Data Relating
to Steel Prices.” The Legislative Reference Service of the Library of Congress,
the Federal Trade Commission, the Department of Labor, and the Department
of Commerce assisted in supplying information for this study. The committee
findings and recommendations as a result of the steel hearings were released
March 27, in a committee report entitled, “ December 1949 Steel Price Increases’ ’
(S. Rept No. 1373),
COMMITTEE ACTIVITIES IN THE FIELD OF REGIONAL DEVELOPMENT

In connection with encouraging local research on the economic problems and
potentialities of the great regions of the Nation, the Joint Economic Committee
published July 1, 1949, a committee print on The Impact of Federal Policies on
the Economy of the South— a study made by economists of the Committee of the
South of the National Planning Association at the request of the Council of
Economic Advisers. While the Joint Economic Committee did not act upon the
report, and hence could not assume responsibility for the ideas expressed by the
authors, they did recognize it as a significant work, representing a systematic
effort to define, analyze and appraise the complexity of Federal policies which
handicap or facilitate the economic development of the South. Members of the
committee have explored with leading citizens of New England and the R ocky
Mountain States the desirability of developing similar studies in those regions.
On December 12, 1949, the National Planning Association announced that in
response to the Joint Economic Committee’s interest a special committee of
New England was being organized and would start its work early in 1950.
The Unemployment Subcommittee, which calls attention in its final report to
the need for study and action in the field of regional development, had compiled
for its use and for general distribution a “ Handbook of Regional Statistics” which
was made a committee print on April 13, 1950. This publication assembles in
convenient tabular form Government statistics which are especially useful to the
consideration of regional problems. The data are classified according to com­
monly defined economic regions, with individual State figures shown in all the
tables to enable the regrouping of regions or subregions as needed.
COMMITTEE ACTIVITIES IN THE FIELD OF ECONOMIC STATISTICS

The committee has continued its interest in the field of economic statistics during
the past year and a number of recommendations for improving or supplementing
existing statistical series have been made in its various reports. The committee
staff, in cooperation with the staff of the Division of Statistical Standards of the
Bureau of the Budget, and staff of the Council of Economic Advisers, have again
reviewed the status of current economic statistics and the progress made in supply­
ing the needed statistical data outlined in the committee’s report on the January
1949 Economic Report of the President.7 Their statement is presented in the
latter part of this appendix. Economic Indicators, a collection of charts and
statistical tables prepared by the Council of Economic Advisers and issued
monthly as a committee print, was made a permanent publication of the Congress
on June 23, 1949.8 This monthly report is now on sale to the public through the
Superintendent of Documents as single copies or on an annual subscription basis.
It contains in chart and tabular form the most recent data on prices, employment,
production, and business activity, purchasing power and money, banking, and
Federal finance.
COMMITTEE RELATIONSHIPS WITH EXECUTIVE AGENCIES AND OTHER CONGRESSIONAL
COMMITTEES

Public Law 304 (79th Cong., 2d sess.) under which the committee was estab­
lished, authorized the Joint Committee on the Economic Report to “ utilize the
services, information, and facilities of the departments and establishments of the
Government * *
The necessity for this arrangement has been demon­
strated many times over during the past year. Hardly a single report o f the
committee was issued without the aid of one or more of the executive agencies in
the development of the basic economic facts. Special studies of mutual interest
7S. Rep. No. 88, 81st Cong., 1st sess., pp. 86-91.
* Public Law 120, 81st Cong., chap. 237, 1st sess.




112

JOINT ECONOMIC REPORT

to the agency and the joint committee have been made at the committee’s request
and several agencies have made highly trained personnel available to the com­
mittee on a reimbursable loan basis to assist in the technical work on various
economic problems.
The development of an increasingly constructive relationship between the
Council of Economic Advisers and the joint committee is noted. Full and free
discussion with those who have the statutory responsibility of advising the Presi­
dent on the Economic Report seems essential to a complete understanding of the
report by the committee. In the course of the committee’s hearings on the
President’s Economic Report, the Council was questioned, in executive session, on
some of the main, guiding considerations underlying the preparation of its Annual
Economic Review, which serves as a basis for the President’s Report. As is
evident from the transcript of these hearings, which has been published by mutual
consent, the questioning helped greatly to clarify some of the points which, neces­
sarily, were touched on only briefly in the Council’s Review. Subsequent to the
hearings, the joint committee asked the Council to answer for the record a great
many additional questions relating to the President’s Economic Report and the
Council’s Annual Economic Review, and also requested comments on the report
of the Subcommittee on Monetary, Credit, and Fiscal Policies.
The standing committees of the Congress have made use of committee reports
and hearings in connection with the consideration of specific legislation and
arrangements have been made to supply these committees with all materials of
special interest to them.
AMENDMENTS TO THE EMPLOYMENT ACT OF 1946

On June 15, 1949, S. 2085 was introduced in the Congress, to provide for certain
amendments to the Employment Act, the principal purpose of which was to
authorize an increase in the committee’s annual appropriations so it would not be
necessary to make repeated resort to special resolutions to obtain funds for studies
needed in connection with the Committee’s regular work.9 The bill as introduced
called for increasing the Joint Economic Committee’s basic annual authorization
from $50,000 to $150,000. It was later amended on the Senate floor at the request
of the Chairman by reducing the $150,000 figure to $125,000 and was approved
October 6, 1949 (Public Law 330, 81st Cong., ch. 627). In its report approving
the proposed legislation, the Senate Committee on Banking and Currency pointed
out that “ The joint committee was given tremendous responsibility, but its
appropriation authorization has proved inadequate to meet this responsibility.”
It called attention to the necessity of staffing the committee with a number o f
top economists capable of analyzing and relating fiscal, monetary and regulatory
policy, and said that the committee
<** * * should be equipped to appraise and relate international and foreign
trade policies to our domestic economy and continually study national product,
and national income, including resources, plant capacity and price, wage and
profit relationships, and the like. It would be contemplated that this enlarged
staff, functionally organized, would not engage in duplicating research, but rather
devote its attention to bringing to the committee information and independent
objective advice on these related economic problems. It would be charged with
working with the Council of Economic Advisers, other executive agencies and
non-Govemment groups, to minimize the duplication of work, but not the inde­
pendence of approach. Out of this activity would continually emerge special
problems calling for intensive investigation by the committee’s staff and consult­
ants. The joint committee should be properly provided with research and
statistical technicians to summarize and present the economic information to
members of the joint committee and the Congress in the m ost useful and objective
form. * * *”
In order to enable the committee to begin its work immediately under this
increased authorization, a $10,000 supplementary appropriation for the balance of
fiscal year 1950 was approved on October 28, 1949 (Public Law 430, 81st Cong.,
1st sess.).
• The bill also contained a clarifying amendment which permitted the hiring of a special counsel for the
Investment Subcommittee, whose law firm was handling cases involving the United States Government.




JOINT ECONOMIC REPORT

113

DISTRIBUTION OF JOINT ECONOMIC COMMITTEE MATERIALS

The Joint Committee on the Economic Report released in committee print,
report, or document form 16 different studies between January 1949 and April
1950. In addition to these publications the committee issued Economic Indicators
each month and published the record of seven hearings. Exclusive of the monthly
Economic Indicators, the committee distributed nearly 45,000 copies o f its
publications. Over 15,000 copies o f Economic Indicators were distributed
through the committee and by the Government Printing Office within the Con­
gress, to the offices of individual Members and to various congressional committees.
Seven publications were put oh sale b y the Superintendent of Documents and
total sales through the end of April amounted to nearly 30,000 copies in spite
of the fact that some of the materials were available for sale for only a limited
time. Sale of Economic Indicators are currently approaching 2,500 per month.
It is the general practice of the Joint Economic Committee to make its publica­
tions available for limited free distribution o f single copies and to arrange for
their sale through the Superintendent of Documents to take care of quantity
orders.
STATEMENT ON STATISTICAL GAPS

In 1948, the Joint Committee on the Economic Report published a report
on Current Gaps in Our Statistical Knowledge, indicating what additional data
would contribute significantly to economic analysis. The report included 12
areas in which more complete Federal statistics are needed. A progress report
on the statistical gaps was included as appendix D in the joint committee’s report
on the January 1949 Economic Report of the President (81st Cong., 1st sess.,
S. Rept. No. 88), and one additional area of needed statistics was added.
Working with the joint committee staff, and in consultation with the Council
of Economic Advisers, the Division of Statistical Standards of the Bureau of the
Budget has analyzed the current statistical programs of the executive agencies to
determine what work has been completed or is in prospect to fill the gaps pointed
out in the 1948 and 1949 reports. The analysis is limited to progress and plans
in the major statistical areas covered in the original report and does not include
evaluation of the improvements needed or progress made in statistical programs
in other areas.
Progress has been made toward supplying missing statistical data for economic
analysis and as a basis for determining economic policy. Although the appropria­
tions for 1950 allowed for few major improvements, the appropriation requests
for 1951 provide for important improvements in most of the areas listed in the
report on statistical gaps. The 1951 program is necessarily tentative until
action on the appropriation requests, but the following discussion of each area
shows which activities depend on items in the 1951 budget.
( 1) Individual consumer income, expenditures and savings patterns
Because of the central role of consumer income and spending in a free economy
the need for adequate data on the patterns of income, savings and spending of the
various income groups has long been recognized. In the past few years substantial
improvements have been made in this area and a firm foundation has been laid
for future work. Four key areas can be distinguished.
(a)
Surveys of consumer income.— For calendar year 1949, data on the incomes
and market potential of each county and each city over 2,500 population will for
the first time be made available from direct field study. The income portion of
the seventeenth decennial census of population will provide this essential informa­
tion, useful not merely for its own interest but because it will be related to th e
data on employment and unemployment, occupation, industry, and family size.
The data will cover family income as well as individual income, the former being
particularly important for measuring marketing potentials and for studying the
effects of different governmental policies. At the same time the Federal Reserve
Board and the current population survey of the Census Bureau will conduct smallscale studies to provide more detailed data on the national distribution of income.
These studies will make it possible to continue, on a comparable basis, the series
of income distributions over the years, such as those made in the reports of the
Council of Economic Advisers and in the recent study on low-income families by
the Joint Committee on the Economic Report.
Prompt tabulation of the Census data to provide the essential local benchmark
data on income is needed, and the funds requested for further work on the seven­
teenth decennial census allow for such tabulations. Because these data will be
used so widely it is particularly important that the Census Bureau should carry




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JOINT ECONOMIC REPORT

through its plans for a special analysis to indicate their reliability and the precision
with which they can be used for various purposes.
Another area in which a follow-up on preliminary work is required is that o f
trends in income. As indicated in the report on low-income families, it is vital
to know how many low-income families are chronically, and how many are in
fact only temporarily, at the bottom of the income distribution. For this purpose
we need a series of studies covering the same families over a period of time, on a
regular periodic reinterview basis. This subject is discussed at greater length in
the committee print on Low-income Families and Economic Stability.
A third area in which work should be vigorously pursued is that of increasing
the usefulness and reliability of income data for purposes of business operations
and for policy determination, both legislative and executive. Users of these
data need more current and more promptly available information than it ispossible to provide under existing methods and budget limitations. Further study
is needed to determine the most economical and least burdensome methods to be
followed in obtaining reliable income data.
(b) Surveys of consumer expenditures.— In the field of family expenditures,
proposals for the fiscal year 1951 include studies which will go far to fill one o f
the most important gaps in our economic data. Incident to the present revision
of its Consumer Price Index, the Bureau of Labor Statistics is proposing to survey
family expenditures for more than 20,000 families in approximately 50 cities
representative of the urban population of the United States. Related data on
family income and saving and family size and employment status will also be
secured on a basis for classification and cross tabulation. The Department o f
Agriculture is proposing a similar survey for 7,500 to 10,000 rural families through­
out the country, to obtain data on family income and expenditures. The BLS
and Agriculture 1951 surveys will be the first to provide data on a Nation-wide
basis since the small-scale study covering the year 1941, and the first since the
mid-thirties to obtain data from an adequate national sample.
The information to be obtained on the kinds of goods and services bought by
American families at various income levels and in various areas will be invaluable
not only for revision of price indexes and other statistical purposes, but for use
by business and industry in evaluating markets. Through combination of these
data on consumer expenditures with the income information obtained in the census
of population and the data on savings and liquid assets obtained in the Federal
Reserve Survey of Consumer Finances, it will be possible to obtain a much
broader understanding of the functioning and role of the consumer segment o f
our economy.
(c) Annual series on distribution of income, spending, and saving.— Data ob­
tained from field surveys are indispensable for making local area estimates of in­
come and expenditures, as well as for studying marketing problems associated
with the relationship between family incomes, spending, employment, and other
key factors. However, even the most carefully planned and skillfully administered
survey program is not well adapted to the preparation of a fully adjusted estimate
of the national distribution of income. For this purpose, integration of field
survey data with those of the Bureau of Internal Revenue is necessary.
Exploratory work in this field has already begun in the Office of Business
Economics. The budget request for fiscal 1951 will make it possible to complete
a fully adjusted income size distribution for the year 1946 by the end of calendar
year 1950 and one for 1947 in the first half of calendar year 1951. Thereafter,
the distribution for any given year would be completed with a 3-year time lag, a
delay made necessary by the timing of the tabulations of Bureau of Internal
Revenue data. Thus, 1948 would be completed at end of calendar year 1951.
T o remedy this lag a program of preliminary estimates has been proposed. Once
the basic procedures have been worked out it is expected that estimates can be
made available 6 months after the basic field survey data are issued, or roughly
by the end of the year following the one covered.
Exploratory work on current distributions by income level of expenditures,
savings, and taxes, complementing the income distribution, is provided for in the
1951 budget request for the Office of Business Economics.
(d) Analytical work on current estimates and trends.— For purposes of economic
analysis, the most urgent need in the consumer-statistics field is still for a system­
atic program of analytical work on current estimates and trends, throwing light
on the current situation and on prospective changes in consumer purchasing
power and demand. A program of this kind would utilize current statistics,
data from field surveys, and the adjusted distribution series for preceding years.
It is necessary that work in this area be undertaken in fiscal 1951.




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115

(2) Employment and earnings of employees not covered by social security

The reports of employers under the social-security programs are the basic
source of estimates of wages and salaries— the largest single component of national
income. The 1948 report on statistical gaps pointed to the lack of information
on noncovered employment, including public employees, agricultural workers,
domestic servants, and employees of nonprofit institutions.
The proposed expansion of the coverage of social-security programs would
provide some of the information now lacking. Further planning for obtaining
wage information on noncovered employees is in abeyance until final passage
of the social-security legislation. 'If such legislation is adopted, much o f the
information now needed may be obtained through tabulations of the reports
received from groups brought within the social-security system. If substantial
groups remain uncovered, special provisions will have to be made to fill the re­
maining gaps.
(5) Returns to capital and management of unincorporated businesses
The original report of the committee’s staff on statistical gaps recognized the
difficulties in securing representative and reliable information on the returns to
the millions of uniincorporated businesses, but urged that attention be directed
toward obtaining satisfactory data especially for retail and wholesale trade,
services, and farmers. It was estimated that $100,000 would be needed for the
exploratory work.
No funds have been made available but it has been possible to do some work
toward this end. The major source of such data will have to be tax returns
filed with the Bureau of Internal Revenue. In recent years substantial im­
provements have been made in the statistical tabulations from the tax returns,
ouch tabulations can serve as bench marks on the returns to unincorporated
businesses, but are subject to two serious limitations: In order to avoid interference
with operating procedures, they cannot be made available until about 3 years
after the year to which they relate; and they are now tabulated only in alternate
years. Study is underway to determine whether it is feasible to tabulate the
data more promptly and whether the cost of more frequent tabulations would
be justified.
The B IR returns cannot be expected to supply current data. Study has been
given to the problem of current data in connection with the income question on
the census of population and the small income surveys discussed under (1) above*
Some improvements have been made in the wording of the questions, but the
big problem in this area is that unincorporated businesses do not usually keep
bookkeeping records that will yield adequate monthly or quarterly information
on, for example, changes in value of inventory and other capital items. Study
has been given to the possibility of expanding the Federal Trade CommissionSecurities and Exchange Commission financial reporting program, discussed
under (5), to this area. However, until funds are available for expanding that
series to cover all corporations, exploratory work on whether the unincorporated
segment can be covered at reasonable cost has not been undertaken. Although
some improvement has been made, further work is needed. In the immediate
future, most promising results may be in improvement of the data on farmers’
incomes.
(4) Extension of employment and unemployment statistics
In its recent report on employment and unemployment the committee’s Sub­
committee on Employment stated:
“ Probably the most significant need established by the subcommittee’s investi­
gations was the lack of information on the location, number, and characteristics
of the unemployed workers and their families * * *” (p. 1).
The subcommittee recommended immediate study of the problem of providing,
on a regular basis, regional and area information on the volume of total un­
employment.
The need for data in this field would be met in large part by two of the projects
described in the committee’s 1948 report on statistical gaps: (1) Annual surveys
of labor force, employment and unemployment in selected large metropolitan
areas, and (2) expansion of the monthly survey of the labor force conducted by
the Census Bureau to provide reliable data on occupational and other character­
istics of the unemployed. These two programs would provide occupational
characteristics of the unemployed on a national basis, as well as some other infor­
mation sought by the subcommittee on an area basis. The 1950 Census of
Population will provide such data for the Nation, States, and areas as of April




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JOINT ECONOMIC REPORT

1950, but no provision has been made to obtain the information on a continuing
basis thereafter.
A third need pointed out in the report on statistical gaps was for current infor­
mation on changes in employment in important metropolitan areas. Monthly
employment series for approximately 100 metropolitan areas are now being de­
veloped under the cooperative Bureau of Labor Statistics-Bureau of Employment
Security-State employment security agency program. Funds for this purpose
were appropriated for fiscal 1950 and are included in the 1951 budget request.
Estimates of employment are being developed as rapidly as possible for important
industrial areas. It is expected that monthly employment estimates will be
available for approximately 60 areas by June 1950 and for each of the 100 areas
b y June 1951.
(5) Financial trends of business
The major work in this field has involved the joint Federal Trade CommissionSecurities and Exchange Commission financial reporting program. This project
has been planned (1) to secure quarterly reports from corporations on key financial
items in order to provide current data during the course of a year; and (2) to collect
annually more complete financial statements and publish statistical summaries
which permit better analysis of year-to-year changes. It is worth pointing out
that this is the only series in this field which accurately represents corporations
of all sizes; before its initiation conclusions on financial trends were largely drawn
from the reports published by the larger corporations. Experience to date shows
that the financial situation of small and middle-sized corporations changes quite
differently at times from that of the larger companies.
To date funds have been provided only for the quarterly reports from manu­
facturing corporations. The 1951 budget requests of the Federal Trade Com­
mission and the Securities and Exchange Commission provide for completing the
quarterly program by including nonmanufacturing corporations— mining, retail
trade, wholesale trade, and other services.
Initiation of the annual reports under the complete program will depend on
appropriations in future years.
(6) Periodic censuses of wholesale and retail trade and service

A census of business, including wholesale, retail, and service trades, was taken
in 1949, covering operations for 1948. Data from this census will be published
during 1950 in the form of separate tables, and the final volumes are expected to
be available early in 1951. The next census of business is scheduled to be taken
in 1954, covering 1953.
(7) Development of more satisfactory measures of productivity
Resources available for the measurement of productivity are substantially
greater in the current fiscal year than for the fiscal year 1949, although entirely
satisfactory measures are still well in the future.
Progress in this field has been along several different, although related, fronts.
Improvements in the basic production, employment, and price statistics have
resulted in revisions and extensions of existing measures. For example, data
from the 1947 census of manufacturers will make it possible to revise existing pro­
duction measures as well as to make available other production measures which
were dropped during the war period.
In studying long-term trend of productivity in the economy as a whole, it is
essential that we have a reasonably accurate measure of changes in the total
output of goods and services. Considerable progress has recently been made
toward the development of such measures as is reflected in the estimates of the
Council of Economic Advisers described in appendix A of this report. The
Department of Commerce now has studies under way which will provide additional
refinements but much work remains to be done in this important area.
Also, the Council of Economic Advisers has been working closely with the vari­
ous statistical agencies of the Government to develop an index of physical produc­
tion of goods based upon such available series as the Federal Reserve Board index
of industrial production, the Department of Agriculture index of agricultural
output, and appropriate indexes measuring the volume of construction and the
output o f electricity and gas utilities. It is desirable to extend the physical pro­
duction index of goods to include services. Data now available are not sufficient
for the purpose except for two services: transportation and telephone and telegraph*
The additional funds made available to the Bureau of Labor Statistics for the
fiscal year 1950 will enable it to expand its productivity series to 31 manufacturing,
5 mining, and 4 public utility industries in the summary index program, and to 23




JOINT ECONOMIC REPORT

117

manufacturing industries in the unit labor requirements series. Extension of the
program into fiscal 1951 at approximately the same level is provided in the 1951
budget estimate.
The developmental work cited in the 1948 report on statistical gaps is proceed­
ing with additional emphasis to be placed in fiscal 1951 upon concepts, techniques,
and improvement of measures. Work in this area is planned for measures at levels
varying from plants to aggregate measures embracing the entire gross national
product.
Experimental work on quarterly series is progressing, and it is hoped that by
the end of fiscal 1951 such series can be developed to meet the need for more current
information.
(8) Development of data on construction
(a) Construction costs.— Two steps are currently being taken which are expected

to lay the foundation for the development of a construction cost index for resi­
dential construction. Both of them are in the nature of experimental work neces­
sary to develop an adequate program rather than the initiation of a program itself.
Under the research program of the Housing and Home Finance Agency (title IV
of the Housing Act of 1949) a study will be made to find out if and how the facili­
ties and information sources utilized by the Federal Housing Administration in
compiling data for use in making appraisals can also be used to collect the cost
data required for a cost index system. This study will cover both single and multi­
family structures, with main emphasis on the former.
The Bureau of Labor Statistics is undertaking, in a few localities, a study of the
components—labor and materials— of actual construction costs for a limited
number of single-family houses of specified size and other characteristics.
Funds for the continuation of these two projects are requested in the budget
for fiscal 1951. It is expected that techniques and procedures which may be used
in preparing a regular construction cost index will have been developed and tested
by the end of fiscal 1951. The work will also provide a basis for estimating the
cost of carrying on such an index in subsequent years.
No work has been initiated— nor is any provided for in the budget for fiscal
1951— on the problem of construction cost indexes for the various types of non­
residential construction. The current work on residential construction, however,
may throw some light on possible solutions to some of the technical and procedural
problems which would be encountered in other types of construction. A direct
attack on these other types remains to be undertaken.
(b) Construction volume.— During the current year BLS has initiated surveys in
15 metropolitan areas of the number and characteristics of new residential units
started and the selling price or rent of units completed. The budget request for
fiscal 1951 provides for continuation of these two projects on the same basis,
except for such adjustments as may be required in frequency of data collection
and the number of units covered in each locality as a result of the cost experience
gained. The data thus provided are immediately useful for the areas covered,
but the work is considered developmental in that it provides for the testing and
perfection of survey techniques and gives a basis for estimating the cost of expand
ing the work to cover other localities.
As part of the research program initiated by the H H FA this year a start will
be made in the development of techniques for measuring (1) changes in the hous­
ing supply due to factors other than new construction— i. e., conversions of resi­
dential structures resulting in a change in the number of dwelling units, conver­
sions from residential to nonresidential and vice versa, and demolitions; (2) changes
in the quality and other characteristics of the total housing inventory; and (3)
expenditures for maintenance and repair of residential structures. It is expected
that this work will be carried on into fiscal 1951, and that a continuing program
may be formulated to begin with fiscal 1952.
The Bureau of Agricultural Economics, under the provisions of title V of the
Housing Act of 1949, is conducting a survey of the volume of construction of
farm housing and other farm buildings during the year 1949. Provision is made
in the fiscal 1951 budget request for a survey covering the calendar year 1950,
with the expectation of obtaining data annually on the volume of construction of
farm buildings. No plans have been formulated for obtaining such data more
frequently than annually nor for covering farm construction other than buildings.
As in the case of construction costs, the steps which are in progress to fill gaps
in basic data in the field of construction volume all pertain to residential con­
struction. While these steps are largely developmental in nature they are a
necessary preliminary to the real progress which should be expected to follow.
In addition, substantial improvements are still needed in the quality and ac­




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JO IN T ECONOMIC REPOKT

curacy of data now available on the volume of housing construction. Also, in
view of the local character of construction, data are needed for a larger number
o f individual localities.
It is reasonable to expect, in view of the passage of the Housing Act of 1949,
that attention should be given first to improving information pertaining to resi­
dential construction. However, similar attention should not be too long de­
ferred in the field of nonresidential construction, where even the developmental
work remains to be done.
(9) Improvement of inventory statistics

The committee's report on statistical gaps pointed out the need for integrated
inventory statistics at the manufacturing, wholesale, and retail levels which would
show also how much change from one point to another represented price changes,
speculative withholding, normal restocking, and involuntary increases resulting
from the slowing up of sales.
The completion of the census of manufacturers of 1947 and the census of business
for 1948 makes certain bench marks available on inventories. Similar bench mark
data will again be available for the year 1953. The Census Bureau is collecting
some additional inventory information this year, on a sample basis, covering
1949 for both manufacturing and trade. The 1951 budget request for the Census
Bureau includes funds for an annual comprehensive retail-inventory survey and
for an annual survey of manufacturing plants which would obtain gross inventory
data. These two steps would provide integrated information on inventories on
an annual basis. The current series on inventories conducted by the Office of
Business Economics has been further improved, but any major improvement in
this series will require a larger sample.
(10) Data on materials and labor requirements in relation to production

For evaluating the impact of Government civilian programs (including foreign
aid) on the economy and for military mobilization planning, it is essential to have
comprehensive data on the relationship because the requirements and output of
our industries. In the past few years a substantial beginning has been made by
the Bureau of Labor Statistics and other agencies in the study of inter-industry
relations. Because of the potential usefulness of this technique for purposes of
mobilization planning, the National Security Resources Board has transferred
funds to the BLS for the preparation of a statistical statement on materials,
requirements and output, by industry, in the year 1947. This project, which
utilizes data from the 1947 census of manufacturers and the 1948 census of business,
is well under way.
To apply the anticipated results of this analysis to policy planning, two major
steps must be taken: (1) Detailed information must be secured on the needs
o f both manufacturing and nonmanufacturing industries: (a) for manpower of
differing skill levels, (b) for capital equipment, (c) for plant construction, and
(d) for inventory accumulation under differing levels of national output and
under various mobilization plans. (2) We will also require an extension of key
data on materials consumption, production, sales, and employment secured in
the manufactures and business censuses in order to keep current the basic 1947
statement on interindustry requirements. Preliminary work along these lines,
including methods studies and some data collection, is planned for the current year.
The interest of the National Security Resources Board and the Munitions
Board has already been expressed in this study. Its peacetime uses for private
business, the Council of Economic Advisers and government generally are
equally significant.
(11) Business intentions with regard to capital expenditures

The Office of Business Economics and the Securities and Exchange Commission
have devoted considerable time to studying the significance of changes in these
statistics from one quarter to another, and some exploratory work has been done
on whether additional information can be readily secured from business executives
as to their plans for future expenditures. Substantial improvements and expansion
are provided for in the 1951 budget request. This entire field is new, of course,
and because of its great significance for understanding and anticipating economic
trends continued work in improvement over the next few years should be carried on.
(12) State and local government expenditures
(a)
Expenditures by State and local governments.— The first report of the Joint

Committee on the Economic Report on statistical gaps referred to the need for
annual data on aggregate Government expenditures for all levels of Government,




JOINT ECONOMIC REPORT

119

to the usefulness of interim quarterly reports from a sample of governments on
revenues and indebtedness as well as expenditures, and to the desirability of
projections of revenues and expenditures into the ensuing budget period instead
of limiting reports to past years as is the practice at present. Budgetary limita­
tions have prevented any further development of plans which the Governments
Division of the Bureau of the Census had for estimating aggregate Government
expenditures on £he basis of reports from a carefully selected sample of govern­
ments. The 1951 budget request makes no provision for this proposal, but the
projected decennial census of governments, to cover the year 1952, would obtain
quite complete information on governmental expenditures. Thereafter an annual
survey on a sample basis would be very desirable, and would be facilitated by
the use of the decennial census data.
The Governments Division has no present plan for obtaining quarterly reports
from a sample of governments for use in estimating current revenues and expend­
itures, nor is it planning any projections for future periods. However, consider­
able progress has been made in reducing the lag in annual reports on State and
city finances for the last completed fiscal year. Some progress has also been
made in improving the classifications used in these reports, but additional work
is needed. The Governments Division is currently giving attention to this prob­
lem in preparing for the decennial census of governments.
The census of governments is at present taken by the Bureau of the Census
a t 10-year intervals. A proposed bill providing that this interval be reduced
to 5 years has been sent by the Secretary of Commerce to the Congress. In
view of the rapid changes in State and local government finances which have
characterized the last few years, the increased importance o f intergovernmental
transfers, and the significance of State and local government revenues and expen­
ditures for the national economy, census information on this more frequent basis
would be valuable.
Following the Census of Governments for 1952, it may be desirable to review
the entire program of current reports from State and local governments.
(b)
State and local public works planned.— In connection with the administra­
tion of the second advance public-works planning program (Public Law 352, 81st
Cong.), the General Services Administration is again undertaking to obtain
adequate information on planned public works proposed by State and local
governments. No information on this sector of our economy has been available
since 1947 when the previous program was discontinued. The present program
will expire in October 1951. It would be desirable if the collection of this type of
information were to be provided on a regular and continuing basis so that its
availability would not depend on whether or not Federal funds are available for
advance planning purposes.
The Bureau of Labor Statistics, in its budget for fiscal 1951, has requested
funds to make studies of the employment effects of public works construction.
Except for highways, the last previous studies of this kind were made in the late
1930,s, and the results are no longer very useful. The new studies will cover only
a few types of public works projects such as hospitals and schools which are of
interest to Federal as well as State and local governments. Data for other types,
o f public works will still remain to be brought up to date.
(IS) Business structure and behavior

An important need in this area is a flow of information which would permit
analysis showing the degree of economic concentration in the various industries
as well as comparative data showing the trend of this movement. The census of
manufactures for 1947 has made available basic information and the Department
o f Commerce has pepared a series o f tabulations at the plant level. For many of
the industries so analyzed, 1935 concentration ratios are available for compara­
tive purposes. A sample survey of manufactures covering the year 1949 is now
being taken and funds are being requested in the fiscal 1951 budget for the Bureau
of the Census to permit continuation of this sample survey on an annual basis.
The Federal Trade Commission is planning to devote more staff time to analysis
of these surveys of manufacturing and, by adding new data on the 500 largest
manufacturing corporations, to indicate the control by such corporations of the
output of specific products and groups of competing products.
Data are also available from the financial reporting program conducted jointly
by the Federal Trade Commission and the Securities and Exchange Commission.
The FTC has released a study of the concentration of productive facilities based
on 1947 data obtained under this program. Funds have been requested b y the
F TC to permit the expansion of the quarterly reporting program to cover whole­




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JO IN T ECONOMIC REPORT

saling, retailing, and mining activities. In addition, the fiscal 1951 request of
the FTC includes provision for additional work in the field of concentration.
The staff of the committee have also pointed out the desirability of information
on unit costs. No specific budgetary provision has been made to finance
additional work in this area.
In addition to the general studies proposed above, the Joint Economic Com­
mittee has called for special data on the steel industry in its report on December
1949 Steel Price Increases, for use in a study recommended in that report of “ the
means whereby a greater degree of competition within the steel industry may be
achieved.” 1 The specific recommendation of the committee in regard to needed
0
statistics is:
1.
Information of the type sought but not obtained by this committee,
namely data on prices, output, costs, and profits of each of the major steel
producers, should be systematically collected by the Federal Trade Commis­
sion and kept currently available for use by the Congress. This program
should be undertaken immediately to facilitate the study called for under
recommendation No. 3 below [the study referred to in the paragraph above.]
1 Joint Committee on the Economic Report, December 1949 Steel Price Increases, 8. Rept. No. 1373,
0
81st Cong., 2d sess., p. 25.




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A p p e n d ix

121

C

PUBLICATIONS OF THE JOINT C O M M IT T E E ON TH E ECONOM IC
REPORT, JA N U A RY 1949-APRIL 1950
Joint Economic Report (Report of the Joint Committee on the Economic Report

on the January 1949 Economic Report of the President), S. Doc. 88: March
1949.
Joint Economic Report (Minority Views of the Joint Committee on the Economic
Report on the January 1949 Economic Report of the President), pt. II of S. Doc.
88: April 1949.
Employment and Unemployment (initial report of the Subcommittee on Unem­
ployment) committee print: July 1949.
Economy of the South (the impact of Federal policies on the economy of the South)
committee print. (Sale price 25 cents): July 1949.
*Factors Affecting the Volume and Stability of Private Investment (materials on the
investment problem assembled by the staff of the subcommittee on investment)
committee print: October 1949.
Hearings on Federal Expenditure and Revenue Policies, Sept. 23, 1949,
Containing National Planning Association Reports prepared by Conference
of University Economists: October 1949.
Selected Government Programs which A id the Unemployed and Low-income Families

(materials assembled by the staffs of the Subcommittee on Unemployment and
the Subcommittee on Low-income Families) committee print: November 1949.
Low-income Families and Economic Stability (materials on the problem of lowincome families assembled by the Staff of the Subcommittee on Low-income
Families) committee print: November 1949.
* A Compendium of Materials on Monetary , Credit, and Fiscal Policies (a collection
of statements submitted to the Subcommittee on Monetary, Credit, and Fiscal
Policies by Government officials, bankers, economists, and others) S. Doc. No.
132. (Sale price $1): November 1949.
Hearings, Subcommittee on Investment (Sept. 27, 28, 29, 1949) November 1949.
Basic Data Relating to Steel Prices (materials assembled by the staff of the Joint
Economic Committee for use in steel hearings) committee print: January 1950.
*Highways and the Nation’s Economy (materials assembled by the staff of the Joint
Economic Committee) S. Doc. 145. (Sale price 200): January 1950.
Hearings on monetary, credit, and fiscal policies (Sept. 23, Nov. 16, 17, 18, 22,
23, and Dec. 1, 2, 3, 5, 7, 1949): January 1950.
* Monetary , Credit, and Fiscal Policies (Report of the Subcommittee on Monetary,
Credit, and Fiscal Policies) S. Doc. 129. (Sale price 15 cents): January 1950.
* Employment and Unemployment (Report of the Subcommittee on Unemployment)
S. Doc. No. 140. (Sale price 30 cents): February 1950.
Hearings, Subcommittee on Investment (Dec. 6, 7, 8, 9, 12, 13, 14, 15, 16):
February 1950.
Hearings, Subcommittee on Low Income (Dec. 12, 13, 14, 15,16, 17, 19, 20, 21, 22):
March 1950.
Hearings, 1950 Economic Report of the President (Jan. 17, 18, 19, 20): February
1950.
Hearings, recent steel-price increases (Jan. 24, 25, 26, 27): March 1950.
*Low-income Families and Economic Stability (final report of the Subcommittee
on Low-income Families) S. Doc. 146. (Sale price 20 cents): March 1950.
*Volume and Stability of Private Investment (final report of the Subcommittee on
Investment) S. Doc. 149. (Sale price 15 cents): March 1950.
*December 1949 Steel Price Increases (report of the Joint Economic Committee)
S. Rept. 1373. (Sale price 20 cents): March 1950.
*Handbook of Regional Statistics (material assembled by the staff of the Joint
Economic Committee) committee print. (Sale price $1): April 1950.
*Economic Indicators (a monthly publication of the Congress under Public Law
120. 81st. Cong., 1st sess.) (Sale price 15 cents a copy, $1.75 a year): monthly.
Publications marked with an * are on sale at the Superintendent of Documents, Government Printing
Office, Washington 26, D. C.




O